'ICICI Prudential Bharat 22 ETF Is A Mix Of Cyclical And Defensive Stocks'
Congratulations on a successful anchor round for your Bharat 22 NFO! What was the rationale behind launching this FFO at this time?
A – Last year the Government of India had launched the first tranche of ICICI Prudential managed BHARAT 22 ETF, which was a huge success as we received 3.35 lakh applications amounting to around Rs. 32,000 crores, as against the initial issue size of Rs. 8,500 crores. As a follow-up to this, the FFO has been launched, as the Government has been very keen to promote ETF as an investing tool for the retail investors, and it chose to kick-start its disinvestment program for the current year through the Bharat 22 ETF FFO.
As our market matures, do you think the performance gap between active and passively managed funds is likely to shrink over the next few years?
A – As the markets mature, the stock-picking task gets all the more important for the fund manager to deliver the outperformance. For passive funds, this task gets redundant as they are so designed to track the underlying indices. But when it comes to India, fund managers are able to generate alpha. Moreover, there is room for expansion in the mutual fund market industry in terms of product penetration among the masses. We believe there is the market for both actively and passively managed funds in India.
What is the TER of the Bharat 22 ETF?
A – ETFs by their very nature are low-cost investment products which track the underlying indices. Bharat 22 ETF goes a step further with the TER (Total Expense Ratio) of 0.01%.
The fund is heavily concentrated into five sectors and has a 30 per cent plus allocation to just two scrips. Does this not pose a significant concentration risk?
A – ICICI Prudential Bharat 22 ETF is a mix of cyclical and defensive stocks – a composition which should be a part of any diversified portfolio. Defensive stocks anchor the portfolio during volatile times, while cyclical stocks add the growth element to the portfolio, especially when the economy is just about to turn a corner. Through this ETF, investors can have a diversified exposure to 22 companies in 6 different sectors. i.e. Industrials, Energy, Utilities, Finance, FMCG and Basic Materials, with an overweight on the former three.
In the index, apart from banks, industrials and FMCG has the highest weightage (two scrips from this space). Considering the revival in economic activity and consumption story, both these sectors are likely to perform well over the next 2-3 years. To further take care of the concentration risk, the index will be rebalanced annually with a single stock cap of 15% and sectoral cap of 20%. So, while ETFs are known to be passively managed funds, portfolio rebalancing helps us lend a smart beta factor to this ETF, as it will lead to automatic profit booking in the shares which have outperformed and also mitigate the concentration risk.
What kind of investors should invest into the Bharat 22 ETF FFO? Would you advise risk-averse investors to stay away?
A – ICICI Prudential managed Bharat 22 ETF can be considered as a proxy to large-cap funds, as almost 92% of the index constituents are large caps. The ETF is a unique blend of approximately 60:40 exposure to public and private sector companies. Considering the current economic scenario and market valuations, we are positive on large caps as compared to midcap and small-cap segment.
The 2.5% discount available along with the attractive valuations and a higher dividend yield of 2.5% for the index make it an interesting investment opportunity and that too at a very low cost. We believe investors with an investment horizon of say five to seven years can consider investing in the FFO, as it is an opportunity to own some of the jewels of Corporate India.
Lastly, what would your advice be to investors looking at subscribing to the offering?
A – We believe investing in ICICI Prudential managed BHARAT 22 ETF is one of the ways of investing in India’s growth story. The ETF is available at a lower P/E and relatively better Earnings Growth along with higher dividend yield in comparison to Nifty 50/ S&P BSE Sensex, making it an attractive investment opportunity as compared to the broader market indices.
For those investors who do not have a demat account, we have launched the New Fund Offer (NFO) of ICICI Prudential BHARAT 22 Fund of Funds (FoF), wherein an investor can avail all the benefits extended to the FFO. Retail investor can invest a minimum of Rs. 5000/- and maximum up to Rs 2 lakh during the NFO period of the FoF.
