Mirae Asset Mutual Fund will launch an exchange-traded fund (ETF) investing in the top 50 listed companies in the S&P 500 index of companies in the US.

The new fund offer (NFO) will commence on 1 September and last till 14 September.

Simultaneously, the fund house is also launching a fund of funds (FoF) investing in units of the ETF. This is to enable investors who do not have demat and trading accounts to invest in the underlying scheme.

Demat and trading accounts are needed 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% compound annual growth rate (CAGR) over the past 10 years in rupee terms (as of 31 July).

Over the past five years, and one year, the returns of the S&P 500 index Top 50 have come to 21.7% and 33.6%. In two out of three periods, the S&P 500 has beaten the Nifty 50, which has delivered 12.5% CAGR over the past 10 years and 14.5% CAGR over the past five years. 

Some of this outperformance comes from the depreciation of the rupee, which falls by roughly 3-4% against the dollar per annum.

It is only in the past 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 crisis hit in 2020, Nifty 50 Index fell 38%, while the S&P 500 Top 50 only 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 polarized post-covid world, the top 50 is better, said Swarup Mohanty, chief executive officer, Mirae Asset Mutual Fund, explaining the choice of the narrower top 50 index.

In polarized 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, Alphabet, 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 foray into international funds from India with Mirae Asset Fang+ETF and FoF as recently as May.

These are funds investing in the 10 top technology stocks listed in the US.

“Larger companies do better in polarized markets as happened in the 2018-20 period in India and hence you can invest in this fund if you feel that polarization will continue. If not, I would generally recommend a fund investing in a broad index such as 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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