The role of Indian equity exchange-traded funds in diversified portfolios: a risk-adjusted performance analysis

Diversification and idiosyncratic volatility puzzle: Evidence from ETFs

Gold has long been used as a hedge against inflation, currency depreciation, and geopolitical unpredictability, as well as a safe-haven asset. The rise of alternative investment options, including Gold Futures, Gold Exchange Traded Funds (ETFs), and Sovereign Gold Bonds (SGBs), has caused investor preferences to migrate away from conventional physical gold. This study compares the performance of physical gold and its synthetic financial gold alternative investment vehicles throughout times of trade-related and geopolitical unrest. Their efficiency and risk-adjusted performance are assessed by research using risk and return metrics, such as Standard Deviation, Downside Risk, Sharpe Ratio, Treynor Ratio, Sortino Ratio, Jensen's Alpha, and Beta. The results show that Sovereign Gold Bonds continuously provide higher returns and better risk-adjusted performance, even while all gold-based investments serve as protective assets during uncertain times. While gold futures show greater volatility, especially during periods of acute market stress, Gold Exchange-Traded Funds (ETFs) show steady performance with modest risk. Gold prices are directly impacted by geopolitical conflicts, which can also raise commodity prices, alter interest rate policies, and disrupt global supply lines. Studying the risk and return dynamics of gold and its alternative avenues, such as Sovereign Gold Bonds (SGBs) and ETFs, is critical during the dual crisis of the Russia-Ukraine war and the US-India trade tariff war (2025–2026). The article emphasises how crucial it is to choose the right gold investment opportunities depending on investor risk tolerance and market circumstances. All things considered, the study advances our knowledge of gold's changing significance in portfolio diversification and financial stability throughout the uncertain economic periods.

Increasing sophistication of exchange-traded fund (ETF) indexation methods required that a comparison be drawn between various methodologies to establish the benefits of such product innovations. A risk-adjusted performance evaluation of four pre-selected ETF indexation categories was conducted to establish how alternative ETFs compare to standard market capitalisation–weighted ETFs. The research methodology involved that fundamentally weighted, equally weighted and leveraged ETFs were compared to traditional market capitalisation–weighted ETFs on the basis of risk-adjusted performance measures. Using a sample of South African and American ETFs, several risk-adjusted performance measures were employed to assess the risk and return of each indexation category. Special emphasis was placed on the Omega ratio because of the unique interpretation of the return series distribution characteristics. Findings show that fundamentally weighted ETFs outperformed the other categories during an upward moving market when using standard risk-adjusted performance measures. Moreover, the Omega ratio analysis revealed inherent unsystematic risk in alternatively indexed ETFs, and ranked market capitalisation–weighted ETFs as the best performing category. Equal-weighted ETFs delivered consistently poor rankings, whilst leveraged ETFs exhibited a high level of risk associated with the amplified returns of this category. The study highlights that recent ETF developments bring unique risks that require cautious implementation of alternative ETFs into a portfolio.

PropósitoSe examina el rendimiento de los índices-ESG en América Latina (AL), evaluando sus características de riesgo y retorno en comparación con los índices convencionales.Diseño/metodología/enfoque:Utilizando un enfoque cuantitativo, analizamos los índices-ESG de Brasil, México, Chile, Perú y Colombia, empleando ratios de Sharpe, Sortino y Omega para medir los rendimientos ajustados al riesgo. Se utiliza análisis de regresión para evaluar la replicabilidad de los índices-ESG por parte de los índices de referencia. Se realizan simulaciones de Monte-Carlo para explorar el aumento en los rendimientos ajustados al riesgo cuando se incorporan los índices-ESG en las carteras.Hallazgos:El estudio aborda preguntas críticas: ¿Pueden los índices-ESG superar a sus índices de referencia? ¿Pueden estos índices-ESG ser replicados por sus contrapartes de referencia? ¿Mejoran los índices-ESG la diversificación de las carteras? Los hallazgos revelan que la inversión en índices-ESG tiene el potential de mejorar los rendimientos y la diversificación de las carteras de inversión.Limitaciones/implicaciones de la investigación –Aunque este estudio se centra en diversas economías de AL, es importante tener en cuenta variaciones en moneda y volatilidad.Originalidad/valor:La principal contribución de este estudio radica en su enfoque en países de AL en el examen de carteras diversas; ofrece valiosos conocimientos sobre el rendimiento de los índices-ESG en esta región en comparación con los índices convencionales.

The present study attempts to examine the tracking ability of Indian equity exchange traded funds (ETFs) across the bearish and bullish market regimes. Also, ETFs’ sensitivity to their respective underlying indices across the two market conditions is examined so as to gain an insight into the differences in risk exposure under the two regimes using DBM. The results found that the tracking error (TE) of ETFs varies across the two market regimes with it higher during the bullish regime. At the same time, ETFs’ responsiveness to their underlying indices is found to be higher during the bearish market regime, which justifies the existence of lower TE during the bearish regime. NIFTYBEES, KOTAKNIFTY and BANKBEES emerged to be the top three performers in terms of tracking efficiency. Further, NIFTYBEES, BANKBEES and JUNIORBEES are reported to provide significantly positive excess returns during the bullish regime. As such, investors considering investment in equity ETFs can opt for the top performing funds where they also stand a chance to earn excess return (in few cases). Also, it is observed the beta coefficients of ETFs varied significantly from unity. It suggests that the ETFs and their respective underlying indices are not subject to similar systematic risk.

Chapter 6 - Financial markets: equities

Exchange-Traded Funds (ETFs) have revolutionised the asset-management industry with high liquidity and low bid-asks allowing investors to access a diversified portfolio cheaply. The desirable liquidity characteristics of ETFs are, however, in contrast with their behavior in crisis periods. This paper studies the breakdown in the fixed-income ETFs (FIETFs) market, during the peak of the COVID-19-driven liquidity shock of March 2020. We argue that FIETFs provide an illusion of liquidity and the liquidity mismatch between the ETF and the underlying manifests itself in terms of very significant differences between the price and the Net Asset Value (NAV). We run a further analysis on the dislocation by comparing it with equity ETFs. Comparisons suggest that the cost of liquidity is very high for fixed-income ETFs with significant tracking errors during volatile periods in contrast with the better-behaved equity ETFs. Further analysis on the performance patterns of FIETFs indicates that both the price and NAV might have deviated from fundamentals with an overreaction in the ETF price accompanying an underreaction in the NAV. We also study the phenomena of ‘dealer inventory management’. FIETFs are uniquely different from equity ETFs in that the authorised participant (arbitrageurs) tend to be the large banks that are also market-makers in the underlying securities. Therefore, we show that the incentives of the arbitrageurs may not always be aligned towards arbitraging the price-NAV differential. In a novel empirical study using trading volumes and position changes for the largest corporate bond ETF (LQD), we suggest that inventory management by the larger broker-dealers may have exacerbated the dislocation. We believe that the conflicting objectives of dealers have further increased due to high balance-sheet costs imposed upon them post the Global Financial Crisis. Finally, we propose the use of derivatives, in particular credit derivatives, for the risk management of liquidity shocks. We show that the drawdown from rapid liquidity shocks can be reduced significantly through exposure to credit convexity.

The study analyse the performance difference between Direct and Regular plans of Indian equity mutual funds with a focus on return and risk-adjusted efficiency. The main objective is to compare absolute returns and evaluate performance using risk-adjusted measures such as Sharpe Ratio, Treynor Ratio, and Jensen’s Alpha. The study is based on secondary data collected for selected equity mutual fund schemes over the period 2015–2025.The findings reveal that Direct plans consistently generate higher returns than Regular plans. The risk-adjusted analysis also shows superior performance of Direct plans across all measures. Since both plan types are managed by the same fund managers and follow identical investment strategies, the primary reason for the performance gap is the difference in expense ratios. Lower costs in Direct plans allow investors to retain a larger portion of returns without taking additional risk.The results highlight the importance of cost efficiency in long-term wealth creation and provide practical insights for investors when choosing between Direct and Regular plans. The study concludes that Direct plans offer better overall performance, especially for informed investors who do not require intermediary advisory services.

Index Mutual Funds (IMF) and Exchange Traded Funds (ETF) have developed into widely-accepted and fast growing passive investment instruments, offering investors a low-cost investment alternative in well diversified portfolios. Allocating more into IMFs and ETFs is the investors’ natural response to the experience with and the disillusion about actively managed investment performance. Despite these positive effects, this shift in fund allocation raises substantial concerns about possible negative effects on securities market trading and market quality, on corporate governance and product market competition as well as on systemic risk. Most research so far does not provide significant evidence of negative effects on market quality, on securities market trading, and on systemic risk. Whether the shareholdings of IMF and ETF providers reduces product market competition and whether the concentration of voting rights negatively effects corporate governance requires further analysis. Some problems may occur if ETF and IMF providers team-up with active investors. Overall, the introduction of IMFs and ETFs on broad market indices should be viewed as a financial innovation that broadens the investment spectrum providing many benefits to investors especially when viewed relative to the meager performance and performance persistence of actively managed mutual funds.

[Chapter Introduction and Objectives]: It is now common in most parts of the world for investors to invest through mutual funds that pool in money from investors and invest on their behalf. The global asset management industry has grown to $55 trillion. This chapter provides an overview of the types of schemes available to investors. We also compare mutual funds with another type of funds called exchange traded funds. This chapter has the following objectives: • Provide an overview of the types of schemes of mutual funds • Compare exchange traded funds with mutual funds • List out the advantages and disadvantages of exchange traded funds vis-a-vis mutual funds Mutual funds offer individual investor an opportunity to diversify investment and provide professional money management often with affordable minimum investment amounts. A mutual fund is a security that pools money from investors to purchase stocks, bonds, or other securities for its portfolio. As a result, investors then typically own a portion of a portfolio that includes many more stocks and bonds than they could afford to purchase individually. Investors purchase shares of the portfolio - the value of which increase or decrease based on the value of the investments it holds. The fund distributes any income it receives from stock dividends or bond interest to the shareholders, along with any capital gains from the sale of securities. A diversified portfolio with a variety of investments may reduce the impact of one poor performing investment by offsetting it with another that may perform well during the same time period. Therefore, the overall performance of the investments in a mutual fund's portfolio has the potential to provide better returns over the long term. Net new cash flow to stock and hybrid funds was $221 billion and investors also reinvested $42 billion of dividends in their stock and hybrid funds in 2004 in the United States. Individual investors, directly or indirectly, hold 90% of overall US mutual fund assets, and an even larger share of stock, bond, and hybrid fund assets. In 2004, individuals continued to use funds as one of their primary means to invest. For example, households made $360 billion in net purchases of stocks, bonds, and other long-term financial assets during the year, and long-term mutual funds were the principal means of making these purchases. Assets of the global fund management industry increased for the third year running in 2006 to reach a record $55.0 trillion. This was up 10% on the previous year and 54% on 2002. Growth during the past three years has been due to an increase in capital inflows and strong performance of equity markets. Pension assets totaled $ 20.6 trillion in 2005, with a further $ 16.6 trillion invested in insurance funds and $ 17.8 trillion in mutual funds. Merrill Lynch also estimates the value of private wealth at $ 33.3 trillion of which about a third was incorporated in other forms of conventional investment management. The United States was by far the largest source of funds under management in 2005 with 48% of the world total. It was followed by Japan with II % and the UK with 7%. The Asia-Pacific region has shown the strongest growth in recent years. Countries such as China and India offer huge potential and many companies are showing an increased focus in this region. Exhibits 23.1 and 23.2 present the statistics on the worldwide mutual fund industry and league tables in 2006.

The literature on the impact of ESG engagement on the firms’ financial performance or return on investment provides mixed results, some come up with positive impact, some with negative impact, some with different impact during different economic swings, and some report no impact. Most authors have studied individual companies’ financial performance versus ESG ratings and not diversified portfolios. In this research study, we examined the separate impacts of Sustainalytics -Morningstar E, S, G, ESG, and carbon risk scores on two financial performance indicators (return on invested capital and sales growth) and two risk-return performance indicators (Jennsen Alpha and Sharpe Ratio) of 100 randomly selected U.S. based equity ETFs. We applied the path analysis method of structural equation modeling (SEM) to analyze the data. Our findings showed that whereas the distinct metrics E, S, and G had mixed impacts on the selected performance metrics, the overall ESG risk score had significant impacts on all the financial and risk-return performance indicators. The findings of this research might encourage investors to increase the share of low ESG risk ETFs in their portfolios which in turn pushes the companies to improve their ESG engagement, a win for the environment and entire society.

Predicting exchange-traded funds (ETFs) is challenging due to their diversified portfolios, exposure to market volatility, and short-term noise. This study compares eight machine learning models—Logistic Regression (LR), Linear Discriminant Analysis (LDA), Support Vector Machine (SVM), Random Forest (RF), Gradient Boosting Decision Tree (GBDT), Extreme Gradient Boosting (XGBoost), Long Short-Term Memory (LSTM), and Naïve Bayes (NB)—for forecasting the direction of daily ETF returns. Two horizons, next-day (T+1) and five-day (T+5), are examined. The analysis also tests the incremental value of incorporating the CBOE Volatility Index (VIX). Results show that performance varies across ETFs and horizons: linear models and LSTM perform best on large-cap indices (SPY, DIA), while RF leads for the small-cap index (IWM). At T+1, top models reach 56–58% accuracy; at T+5, LSTM improves markedly to 64.5% on SPY and remains strongest on QQQ and DIA, while most other models decline. Overall, horizon effects are model-specific rather than uniformly positive, and adding VIX provides only marginal, statistically insignificant gains (<2%). The findings suggest that model selection should depend on ETF and horizon, while broad volatility indicators such as VIX offer limited value for short-term forecasts.

Emerging Market Portfolio Strategies, Investment Performance, Transaction Cost and Liquidity Risk

EVALUATING THE PERFORMANCE OF AMPUTEE SERVICES AT NEIGHBOURING HOSPITALS: A RISK ADJUSTED PERFORMANCE ANALYSIS

A Empirical Look on Exchange Traded Funds