MUMBAI: Mirae Asset Mutual Fund will launch an Exchange Traded Fund (ETF) investing in the top 50 listed US companies comprising the S&P 500 index. The New Fund Offer (NFO) will start on 1 September and last till 14 September.
Simultaneously, the fund house will launch a Fund of Funds (FoF), investing in units of the ETF. This will help investors without demat and trading accounts to invest in the underlying scheme. Demat and trading accounts are required to buy ETF units. The ETF will have an expense ratio of 0.37% while the FoF will have an expense ratio of 0.62% for the direct plan. For the regular plan, the FoF expense ratio will climb to 1.05%.
By way of comparison, the Motilal Oswal S&P 500 Index Fund which tracks the broader S&P 500 Index has an expense ratio of 0.49% on its direct plan and 1.06% on its regular plan.
According to a presentation released by the fund house, the S&P 500 Top 50 has delivered returns of 22.6% CAGR over the past 10 years in rupee terms (as of 31 July 2021). Over the past five years and one year, returns of the S&P 500 Index Top 50 come to 21.7% and 33.6%. In two of three periods, the S&P 500 has beaten the Nifty 50 which has delivered 12.5% CAGR over the last 10 years and 14.5% CAGR over the last 5 years. Some of this outperformance comes from the depreciation of the rupee which falls roughly 3-4% against the dollar per annum. It is only in the last one year that the Nifty did better, with a return of 44.2%.
Moreover, the correlation of the S&P 500 Top 50 index with the Nifty is just 0.14, meaning that an S&P 500 Top 50 fund can diversify away some of an investor’s risk. In addition, the S&P 500 Top 50 Index has historically suffered lower drawdowns (dips) than the Nifty. For instance when the Covid 19 crisis hit in 2020, Nifty 50 Index fell 38% while the S&P 500 Top 50 fell 26% (both in rupee terms).
The S&P 500 Top 50 Index has a very high correlation with the broader S&P 500. According to the Mirae Asset presentation, this is as much as 0.98.
“We feel top 50 is better than a broad based 500. In a polarised post covid world the top 50 is better,” said Swarup Mohanty, CEO, Mirae Asset Mutual Fund, explaining the choice of the narrower top 50 Index. In polarised markets, the top companies grab more market share. “We aspire to be a thematic ETF as a positioning, so our ETFs would be a bit away from broad indices,” Mohanty added.
The top five companies in the S&P 500 Top 50 are Apple, Microsoft, Apple, Amazon, and Facebook in that order. Information technology occupies the highest share in the index at 38.5%, followed by communication services (18.4%) and consumer discretionary (13.5%).
Mirae Asset Mutual Fund is part of a global asset manager. However it made its first global foray into international funds from India with Mirae Asset Fang + ETF and FoF as recently as May 2021. These are funds investing in 10 top technology stocks listed in the US.
“Larger companies do better in polarised markets as happened in the 2018-20 period in India and hence you can invest in this fund if you feel that polarisation will continue. If not, I would generally recommend a fund investing in a broad index like the S&P 500. International exposure should be 10-15% of your portfolio,” said Amol Joshi, founder, Plan Rupee Investment Services.
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