Investing in foreign securities has picked up over the last two years and mutual fund houses have been lining up schemes and exchange-traded funds (ETFs) to explore options. Mirae Asset India’s S&P 500 Top 50 ETF (MTOP50) will invest in companies across sectors in the US markets. This is the fund house’s second foreign fund that invests in the US markets. In May, it had launched an ETF that invests in ‘FANG-plus stocks’.
What’s on offer
MTOP50 aims to mimic the S&P 500 Top 50 index. This index comprises 50 large companies by market cap within the S&P 500 index. These companies are spread across sectors such as information technology, consumer staples, communication services, healthcare, and consumer discretionary. This index is rebalanced once a year in June.
MTOP50 will buy the stocks in the index and hold on to them. The fund of fund scheme will keep buying the units of MTOP50.
MTOP50 gives the much-needed concentrated portfolio of giants across sectors. A typical technology sector focused fund is concentrated in its approach. And all of the scheme’s fortunes depend on how one sector performs. MTOP50 is more diversified.
Swarup Mohanty, Chief Executive Officer, Mirae Asset Investment Managers (India) says, “MTOP50 can be a part of your core investment portfolio, as it offers a diversified exposure to the largest 50 companies listed in the US from the S&P 500. Mirae Asset NYSE FANG + ETF can be part of your tactical portfolio as it is a thematic product.”
The portfolio comprises names that have so far grown their business despite their large sizes. “When you invest in large companies, you are exposed to the risk of growth of business maturing. However, large American companies have so far handled this challenge well and demonstrated further scaling up of their business,” says Feroze Azeez, Deputy CEO, AnandRathi Private Wealth.
Since it is a passively-managed product, it cuts costs and does away fund manager risks.
The biggest drawback of this scheme is that it is treated like a debt fund for income-tax purposes.
ETFs in India are evolving and have suffered low liquidity. The fund house has also launched a fund of funds option, especially for those who don’t have a demat account.
The other worry is about how high the US markets could go. The S&P 500 index in the US has risen by 19 percent annually over the past 10-year period, led by technology-driven businesses, among other sectors. The US economy has done well since the end of Global Financial Crisis, too. Investors must temper their expectations as the US Federal Reserve starts tapering – withdrawal of ‘liquidity’ that has been the key driver for pushing up equity markets.
What should you do?
Rupesh Nagda, Founder and Managing Director, Family First Capital says, “Investing in stocks listed in the US brings in geographical diversification and should reduce portfolio volatility.” If you haven’t invested in any US-focused equity scheme, then you can consider allocating 5-10 percent of your equity portion to this scheme, he adds.
An ideal way to invest abroad is through a passive scheme, as there is no fund manager stock selection risk involved. If you wish to invest in US markets across sectors and are particular about sticking to the largest ones, then this is a reasonable choice.
The NFO closes on September 14, 2021.