"How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case."

"The biggest risk of all is not taking one."

Factor investing has witnessed remarkable growth over the past decade, redefining how investors approach equity markets. With a growing emphasis on systematic, rule-based strategies, Smart Beta ETFs have become a preferred vehicle for factor-based investing. The surge in Assets Under Management (AUM) across various factor categories highlights the increasing adoption and confidence in these strategies.

The following table showcases the factor-wise AUM growth of equity Smart Beta ETFs in the USA over the last decade, reflecting how investor preferences have evolved:

Source: Bloomberg Intelligence. The AUM Growth is measured as the Compounded Annual Growth Rate (CAGR) of factor-wise AUM from 31st December 2014 to 31st December 2024.

Alongside the rise in AUM, the number of factor-based ETFs has also grown significantly, demonstrating broader investor acceptance and increasing product availability. The table below provides insights into the expansion of factor-based ETFs over the past decade. The expansion in the number of ETFs highlights how factor-based strategies have transitioned from niche offerings to mainstream investment solutions.

Source: Bloomberg Intelligence. Data as on 31st December 2024

Factor investing has been on a steady rise across the global investment landscape, and its future looks particularly promising in India. As this investment approach gains traction in the Indian market, NJ Asset Management Company has been stepping up to meet the challenge with innovative solutions and a forward-looking perspective.

One of the key hurdles to factor investing in India has been the scarcity of accessible factor-based strategies. Investors have faced a relative lack of choices, making it challenging to incorporate these strategies into their portfolios. Additionally, the dearth of comprehensive, high-quality data - both in terms of historical records and coverage of a wide range of companies - has posed a significant constraint.

NJ Asset Management Company, recognizing the potential of factor investing, has made significant strides in addressing these challenges. Over the past few years, the company has diligently curated a high-quality dataset covering a substantial number of companies, spanning more than two decades. This extensive database now serves as the cornerstone of NJ’s factor-based strategies across its products, offering a reliable and robust foundation to build our portfolios upon.

Furthermore, NJ Asset Management Company boasts in-house data analytics capabilities, allowing for a deeper and more insightful exploration of the data. This synergy between comprehensive data and data analytics empowers NJ AMC to craft and manage factor-based strategies that align with their client’s investment goals and risk profiles.

The future of factor investing in India is not only about expanding accessibility and data but also about innovation. NJ Asset Management Company is committed to pioneering rule-based strategies that adapt to the ever-evolving market dynamics. With computing power, data analytics, and evidence-based intelligence reshaping the investment landscape, NJ is at the forefront of this transformation.

One area where NJ AMC envisions significant progress is in the development of protocols that can assign weights to individual factors based on real-time market conditions. This dynamic approach promises to make factor investing even more efficient and effective. It’s a crucial step towards fully adaptive protocols that leverage data-driven machine learning technologies. These adaptive protocols aim to offer investors a superior investment experience, unlocking the potential of factor-based investing for a broader audience.

The acceptance of factor-based strategies in India is poised to grow, with an increasing array of investment options and innovative strategies entering the market. NJ Asset Management Company, as the first exclusively dedicated rule-based asset manager in India, is determined to lead this endeavour. The adoption of factor-based strategies marks a shift in the investment landscape, providing an alternative to the traditional, discretionary approaches. This change is essential in eliminating human biases and ensuring time-bound rebalancing, offering investors a markedly different investment experience.

Furthermore, the mutual fund industry in India is at a nascent stage compared to the potential it holds. With the economy maturing and structural reductions in inflation rates, the preference for fixed-rate savings is expected to wane. This shift in financial behaviour is anticipated to drive the growth of professional asset management in the coming decades.

In conclusion, NJ Asset Management Company believes that factor-based strategies are set to become an integral part of the Indian investment landscape. These strategies, with their potential to generate positive excess returns in a cost-effective manner, coupled with ongoing research efforts to enhance the consistency of factor performance, will inevitably find their place in the portfolios of Indian investors, shaping the future of factor investing in the country. NJ Asset Management Company is poised to lead this change, ensuring that investors have access to innovative and adaptive strategies that can navigate the complexities of the evolving investment landscape.