DSP BlackRock Mutual Fund has launched the DSP BlackRock Equal Nifty 50 Fund, its first scheme in the passive funds category.
The NFO is currently open for subscription and close on October 13, 2017.
Unlike regular ETFs, which merely mimic a particular index, smart beta ETFs try to generate higher returns than ETFs within the framework of passive management. This is a relatively new category in the Indian ETF landscape. Such products are one of the fastest growing categories in the international markets.
The DSP BlackRock Equal Nifty 50 Fund is an equal-weighted variation of the Nifty 50 index with the same constituent set of companies.
The fund will have equal weightage to each stock whereas its benchmark i.e. the NIFTY 50 index follows market cap weighted approach in which the stocks having higher market capitalization have more weightage. In other words, large companies will have higher weightage in the index. This creates a bias since the top 10 stocks constitute over 60% of the weightage.
On the other hand, this fund will allocate equal proportion to each stocks. The company claims that such indices tend to outperform market cap weighted indices in the long term. The fund house said that the Nifty 50 Equal Weight Index has outperformed the Nifty 50 Index with an alpha of 2.92% (returns since 30th June 1999 to 31st July 2017). In addition, the fund houses will rebalance Equal Weight Index on a quarterly basis. DSP BlackRock believes that owing to this quarterly rebalancing method, an equal weight portfolio has a built-in profit booking mechanism, in effect buying the underperformers at low and selling the outperformers at high
Gauri Sekaria, Vice President, ETF and Passive Investments at DSP BlackRock is the fund manager for this fund. Gauri has over 12 years of experience in management of ETFs and Index Funds.
Kalpen Parekh, President, DSP BlackRock Investment Managers, “We are excited to launch our first passive fund through an interesting smart beta concept of equal weight portfolio. We have successfully been managing active funds for over two decades and are now complementing our product range via launch of passive funds. The market too is maturing with current AUM of Rs.65,000 crore in ETFs and passive funds since EPFO & PFs started investing in 2014.”
Anil Ghelani, CFA, Senior Vice President, DSP BlackRock MF said, “The fund is an attractive option for an individual or HNI investor to gain access to a portfolio which meets the two basic principles of investing in leaders and diversification across companies and sectors, a smart strategy which has potential to outperform market-cap indices as seen in the past. Equal weighting creates a different set of risk exposures and return potential when compared to market cap weighting and hence it offers good diversification for sophisticated institutional investors like corporate treasury or an exempt PF trust.”