The finance ministry is planning to launch a new Central Public Sector Enterprises (CPSE) exchange-traded fund (ETF). The one will be similar to the existing fund with 10 stocks, according to reports. Retail investors in Goldman Sachs' CPSE ETF, however, wouldn't be too happy with returns of -22.29 per cent in the past one year. In comparison, the Nifty 50 index has returned -7.99 per cent. Even if they have stuck around since the launch and have received the loyalty bonus of one unit (for every 15 units held) plus the earlier five per cent discount, their returns would hardly beat the Nifty.
However, the scheme has performed better than its own benchmark index - the CPSE index. In the past year, the CPSE index is down -28.71 per cent, whereas the CPSE ETF has fallen -22.29 per cent, according to data from Value Research. The fund had raised Rs 3,000 crore in March 2014 but the asset under management is now at Rs 1,917 crore.
"The concept of CPSE ETF was brilliant but it backfired because of oil prices crashing," says Arun Kejriwal, Director at Kris Research. The ETF of 10 stocks is skewed towards energy, which comprises over 70 per cent of the portfolio at present. The 10 public sector units which are part of the fund basket are ONGC, GAIL India, Coal India, Indian Oil, Oil India, Power Finance Corp, Rural Electrification Corp, Container Corp, Engineers India and Bharat Electronics. Of these ONGC and Coal India comprise around 50 per cent of the portfolio. Kejriwal says that the performance of exiting CPSE ETF may discourage investors to look at similar schemes in the future unless the government comes up with a well diversified portfolio.
Existing investors can cut their losses and look at another equity diversified fund. "Energy as a sector is extremely concept for investor to take view on the future performance this fund. It's better they look for something more diversified and simpler," says Kejriwal.
According to Sanjeev Bhasin, executive vice president at domestic brokerage IIFL, investor should take a view on this ETF depending on their outlook for the broader market. "If they are positive on the market for the next three years, they should stick to the investments. Most of these large cap stocks have been underperformer. When markets turnaround, they will be the first ones to benefit," says Bhasin.
Also, with the management of the fund house changing - Reliance Mutual Fund has agreed to buy Goldman Sachs Asset Management - investors might have more choice within the new house to shift their money. After the merger, investors who wish to exit the ETF can do so seamlessly as they will not incur any charges for switching over to any of Reliance MF's funds. Since the CPSE ETF is a passive fund, a change in management is not likely to affect the composition or performance of the fund. Even if they want to exit it now, they can do so without any exit load.
