DSP Nifty Midcap 150 Quality 50 ETF: A Quality Bet for Your Passive Portfolio?
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Mid-caps stocks are known for their volatile nature, which concerns many investors. That said, midcap stocks hold the potential to offer eye-catching returns when the tailwinds favour these smaller companies.
If you invest in a mid-cap Exchange-Traded Fund, you could gain from a diversified portfolio of mid-cap stocks and don't need to churn your portfolio often to generate attractive returns. The DSP Nifty Midcap 150 Quality 50 ETF, is one such ETF that offers you the opportunity to invest in top mid-cap companies by applying the 'quality' filter to the universe of 150 mid-cap stocks.
This means you have the chance to invest potentially only in companies with lesser debt, higher ROE and consistent earnings growth. The automatic semi-annual index rebalancing takes care of excluding stocks of companies that rank lower on the 'Quality' scale.
DSP Nifty Midcap 150 Quality 50 ETF, an open-ended scheme from the stable of DSP Mutual Fund, will closely replicate/track the Nifty Midcap 150 Quality 50 Index.
On the launch of this fund, Mr Kalpen Parekh, MD & CEO at DSP Investment Managers said, "Our analysis shows that while around 12-14% mid-caps successfully grow over cycles and become large, there is a risk of stagnation and de-growth for most others. Most of them remain small or mid-caps. The characteristics of those that generate superior returns are the ones that have high ROE, run their business with low debt & have relatively stable profit growth. The DSP Nifty Midcap 150 Quality 50 ETF is designed with these principles. Out of the mid-cap index, it only chooses companies with qualify on these metrics. Our investors can build their portfolio of mid-caps with such a disciplined design that reduces the risk of weak businesses from the overall index."
Table 1: Details of DSP Nifty Midcap 150 Quality 50 ETF
| Type |
An open-ended scheme replicating/ tracking Nifty Midcap 150 Quality 50 Index |
Category |
Exchange Traded Fund |
| Investment Objective |
The scheme seeks to provide returns that, before expenses, closely correspond to the total return of the underlying index (Nifty Midcap 150 Quality 50 Index), subject to tracking errors. There is no assurance that the investment objective of the Scheme will be realized. |
| Min. Investment |
Rs 5,000/- and in multiples of Re 1 thereafter. |
Face Value |
Rs 10/- per unit |
| Entry Load |
Not Applicable |
Exit Load |
Nil |
| Fund Manager |
Mr Anil Ghelani
Mr Diipesh Shah |
Benchmark Index |
Nifty Midcap 150 Quality 50 TRI |
| Issue Opens: |
December 06, 2021 |
Issue Closes: |
December 17, 2021 |
(Source: Scheme Information Document)
The investment strategy for DSP Nifty Midcap 150 Quality 50 ETF:
The DSP Nifty Midcap 150 Quality 50 ETF will aim to track the Nifty Midcap 150 Quality 50 Index and will use a "passive" or indexing approach to achieve the scheme's investment objective.
The scheme will aim to invest in 50 high-quality midcap stocks in a similar proportion as the underlying Index, to generate returns that commensurate to the performance of the underlying index, subject to tracking error.
The scheme will apply a special quality filter to pick the top 50 quality companies from the universe of the Nifty Midcap 150 Index that consists of 150 midcap stocks. The scheme will follow a rule-based portfolio design and factor-based stock selection.
DSP Nifty Midcap 150 Quality 50 ETF will neither try to beat the index it tracks nor will it take an active approach in times when markets seem to be over/undervalued. The AMC does not make any judgments about the investment merit of a particular stock or a particular industry segment nor will it attempt to apply any economic, financial or market analysis.
Since DSP Nifty Midcap 150 Quality 50 ETF is an exchange-traded fund, it will only invest in the security constituting the underlying index. It will aim to ensure that at no point in time do the portfolio holdings deviate from the index. The fund manager will endeavour to keep the tracking error as low as possible.
Besides its exposure to the top-50 quality companies from the universe of the Nifty Midcap 150 Quality 50 TRI, a small portion of the net assets will be held and invested by the fund in cash and cash equivalents/money market instruments, to meet the liquidity requirements.
Under normal circumstances, the Asset Allocation of the scheme will be as under:
Table 2: Asset Allocation for DSP Nifty Midcap 150 Quality 50 ETF
| Instruments |
Indicative Allocation (% of net assets) |
Risk Profile |
| Minimum |
Maximum |
High/Medium/Low |
| Equity and Equity-related Securities of companies constituting Nifty Midcap 150 Quality 50, the Underlying Index |
95 |
100 |
Medium to High |
| Cash and Cash Equivalents / Money Market Instruments* with a residual maturity not exceeding 91 days |
0 |
5 |
Low to Medium |
*Money Market Instruments will include TREPS, Commercial Paper, Certificates of Deposit, Treasury Bills, Bills Rediscounting, Repos, short-term Government securities and any other such short-term instruments as may be allowed under the regulations prevailing from time to time.
(Source: Scheme Information Document)
About the benchmark
The Nifty Midcap150 Quality 50 index includes top-50 companies from its parent Nifty Midcap 150 index, selected based on their 'quality' scores.
The quality score for each company is determined based on return on equity, financial leverage (except for financial services companies) and Earning Per Share (EPS) growth variability of each stock analysed during the previous five financial years.
The weight of each stock in the index is based on a combination of the stock's quality score and its free-float market capitalization. The index will be automatically rebalanced semi-annually.
The following is the list of top constituents and sectors by their weightage as of November 30, 2021:
(Source: http://www.niftyindices.com)
Who will manage DSP Nifty Midcap 150 Quality 50 ETF?
Mr Anil Ghelani and Mr Diipesh Shah are the fund managers for this scheme.
Mr Anil Ghelani is currently the Head of Passive Investments & Products at DSP Investment Managers. He is a Chartered Financial Analyst (from the CFA Institute, USA), a Chartered Accountant (from ICAI India) and a B.Com. Graduate (from H. R. College, University of Mumbai).
Mr Ghelani has over 21 years of experience. Before joining DSPIM he has worked with IL&FS Asset Management Company as an Asst. Manager - Fund Operations, S. R. Batliboi (member firm of Ernst & Young) during his CA articleship and V. C. Shah & Co., Chartered Accountants.
At DSP Mutual Fund, Mr Ghelani currently manages DSP Quant Fund, DSP Equal Nifty 50 Fund, DSP Nifty 50 Index Fund, DSP Nifty Next 50 Index Fund, DSP Liquid ETF and DSP Nifty 50 Equal Weight ETF.
Mr Diipesh Shah has over 20 years of experience. He holds a B.Com degree, is an ACA, and is a candidate of the CFA Program, CFA Institute USA, with Level I cleared. Before joining DSPIM, he was associated with JM Financial Institutional Broking Limited in Institutional Equity Sales Trading, Centrum Boking Limited into Institutional Equity Sales Trading, IDFC Securities Limited into Institutional Equity Sales Trading and Kotak Securities Limited into Institutional Equity Sales Trading.
At DSP Mutual Fund, Mr Shah currently manages DSP Quant Fund, DSP Equal Nifty 50 Fund, DSP Nifty 50 Index Fund, DSP Nifty Next 50 Index Fund, DSP Liquid ETF and DSP Nifty 50 Equal Weight ETF.
Fund Outlook - DSP Nifty Midcap 150 Quality 50 ETF
DSP Nifty Midcap 150 Quality 50 ETF aims to invest in 'quality' 50 mid-cap companies with higher profitability, lower leverage & more stable earnings. The scheme endeavours to invest in each stock similar to the Nifty Midcap 150 Quality 50 Index, without any bias and limits fund manager's involvement.
The underlying index comprises of 50 high quality midcap stocks arranged on the basis of quality scores considering return on equity, financial leverage (except for financial services companies) and earning per share (EPS) growth variability of each stock analysed during the previous five financial years.
Midcap stocks of high quality may grow gradually in favourable market conditions and enter into the large cap universe. Quality midcaps helps to contain the downside risk when markets turn volatile and it may offer significant returns in the long run.
Although midcap stocks may deliver high returns, they are still prone to higher volatility, which makes this scheme a risky investment proposition. In addition, Due to the recent emergence of the 'Omicron' a new variant (of the coronavirus), the market may witness intensified volatility which may weigh down on the NIFTY Midcap 150 Quality 50 Index and its top constituents. The margin of safety appears to be narrow and the clear direction for the equity market from the current elevated levels is unknown.
DSP Nifty Midcap 150 Quality 50 ETF is being launched when the markets have retraced, You must ensure to have a higher risk appetite and a long investment horizon of at least 5-7 years to sustain the various market cycles.
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Warm Regards,
Mitali Dhoke
Jr. Research Analyst
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