HDFC Developed World Indexes FOF: A Worthwhile Proposition for Diversification?
Listen to HDFC Developed World Indexes FOF: A Worthwhile Proposition for Diversification?
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With global economies performing well amid this pandemic, many investors are attracted towards investing in a globally diversified portfolio. Investments in international funds give investors the necessary diversification for their portfolio to mitigate the overall risk. It allows them to invest in high growth equities of leading companies from the developed markets.
International allocation and global diversification is important when it comes to building a robust investment portfolio. More recently, due to the volatile nature of the domestic market, investors are seeking to invest in international mutual funds.
A passively managed fund is a good option for investors to have international exposure and access to the global market. HDFC Mutual Fund has launched a new passively managed fund, HDFC Developed World Indexes Fund of Funds. It is an open-ended fund of funds scheme investing in units/shares of overseas Index Funds and/or ETFs, which will, in aggregate, track the MSCI World Index.
On the launch of this fund Mr Navneet Munot - MD & CEO HDFC AMC said, "This Fund offers investors a gateway to the developed world. This single fund has the potential to offer the best possible diversification in terms of exposure across countries, currencies, sector, style and size at a fine cost coupled with a highly efficient structure from the perspective of global taxation and execution. Since the Indian market has a low correlation with developed markets, this Fund could provide a healthy portfolio diversification. There is currency diversification given that the fund will take exposure to several geographies. The fund is also going to be fairly well-diversified in terms of sectors."
Table 1: Details of HDFC Developed World Indexes Fund of Funds
| Type |
An open ended fund of funds scheme investing in units/shares of overseas Index Funds and/or ETFs which will in aggregate track the MSCI World Index. |
Category |
Fund of Fund (Overseas) |
| Investment Objective |
The investment objective of the Scheme is to provide long-term capital appreciation by passively investing in units/shares of overseas Index Funds and/or ETFs which will in aggregate closely correspond to the MSCI World Index, subject to tracking errors. There is no assurance that the investment objective of the Scheme will be realized. |
| SIP/STP/SWP |
Available |
| Min. Investment |
Rs 5000/- and in multiples of Re 1/- thereafter. Additional Purchase Rs 1000/- and in multiples of Re 1/- thereafter. |
Face Value |
Rs 10/- per unit |
| Plans |
|
Options |
- Growth
- Income Distribution cum Capital Withdrawal (IDCW)
|
| Entry Load |
Not Applicable |
Exit Load |
- Exit Load of 1.00% is payable if Units are redeemed/switched-out within 30 days from the date of allotment of units.
- No Exit Load is payable if Units are redeemed/switched-out after 30 days from the date of allotment. In respect of Systematic Transactions such as SIP, GSIP, Flex SIP, STP, Flex STP, Swing STP, Exit Load, if any, prevailing on the date of registration/enrolment shall be levied.
|
| Fund Manager |
Mr Krishan Kumar Daga |
Benchmark Index |
MSCI World Index (Net Total Return Index) |
| Issue Opens: |
September 17, 2021 |
Issue Closes: |
October 01, 2021 |
(Source: Scheme Information Document)
The investment strategy for HDFC Developed World Indexes Fund of Funds will be as follows:
HDFC Developed World Indexes Fund of Funds will predominantly invest in units/shares of index funds and/or ETFs in a passive manner such that, in aggregate it will endeavour to track the MSCI World Index.
The scheme aims to provide exposure to leading companies in global markets by passively investing in its underlying schemes offered by Credit Suisse Asset Management, which operates as an asset management company.
The scheme follows a 3T framework an optimal fund structure to access developed markets;
Timing - Efficiently manage the tracking errors arising due to different time zones across regions.
Taxation - Withholding tax efficiency with relief at source and reclaims based on double taxation treaties (DTT).
Transaction Cost - CS Index Funds / ETF endeavour to minimise transaction cost with region wise rebalancing.
The investment strategy of this scheme will track the returns of the MSCI World Index by investing in the underlying schemes that provide exposure to 5 regions across 23 developed market countries including, Europe, Japan, US, and Canada.
Currently, the proposed underlying schemes viz. Index Funds/ ETFs are as follows:
| Name of Index Fund/ETF |
Weights as on August 12, 2021 |
| CSIF (IE) MSCI USA Blue UCITS ETF |
67.6 |
| CSIF (Lux) Equity Europe |
19.1 |
| CSIF (Lux) Equity Japan |
6.6 |
| CSIF (Lux) Equity Pacific ex Japan |
3.3 |
| CSIF (Lux) Equity Canada |
3.3 |
(Source: Scheme Information Document)
The above scheme list may change on account of:
1) Changes in constituents of the benchmark index, which require addition/deletion to the list of underlying Index Funds/ETFs schemes.
2) Change in attributes of any underlying Index Funds/ETFs schemes, which renders it unsuitable for meeting the objective of the scheme.
About the benchmark
The MSCI World Index captures large and mid-cap representation across 23 Developed Markets (DM) countries*. With 1,557 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.
MSCI Developed Markets Indexes are built using MSCI's Global Investable Market Index (GIMI) methodology, which is designed to take into account variations reflecting conditions across regions, market cap segments, sectors, and styles.
Under normal circumstances, the asset allocation will be as under:
Table 2: Asset Allocation of HDFC Developed World Indexes Fund of Funds
| Instruments |
Indicative Allocation (% of net assets) |
Risk Profile |
| Minimum |
Maximum |
High/Medium/Low |
| Units/Shares of overseas Index Funds and/or ETFs# |
95 |
100 |
High |
| Debt schemes*, Debt & Money Market Instruments, including Tri Party Repo^, Government Securities and Cash. |
0 |
5 |
Low to Medium |
*Domestic Debt Schemes including Liquid & Overnight schemes
^or similar instruments as may be permitted by RBI/SEBI.
#The Scheme will invest in Units/Shares of Index Funds and/ or ETFs ("Underlying Schemes") such that in aggregate it will endeavour to track the MSCI World Index ("the Benchmark Index").
(Source: Scheme Information Document)
Who will manage HDFC Developed World Indexes Fund of Funds?
Mr Krishan Kumar Daga will be the dedicated fund manager for this scheme.
Mr Krishan Kumar Daga is Senior Fund Manager at HDFC Asset Management Company Limited. He is a B.com graduate and has over 24 years of experience in in Fund Management and Research. Prior to this, he was associated with Reliance Capital Asset Management Company Limited as Fund Manager/Head - ETF, Reliance Capital Ltd. as Held - Vice President, and Deutsche Equities as Held - Vice President.
The other schemes he manages are HDFC Arbitrage Fund, HDFC Banking ETF, HDFC Equity Savings Fund (Arbitrage Assets), HDFC Gold ETF, HDFC Gold Fund (FOF), HDFC Index Fund - NIFTY 50 Plan, HDFC Index Fund - SENSEX Plan, HDFC Multi-Asset Fund (Gold and Arbitrage Assets), HDFC Nifty 50 equal Weight Index Fund, HDFC NIFTY 50 ETF, and HDFC SENSEX ETF.
Fund Outlook - HDFC Developed World Indexes Fund of Funds
HDFC Developed World Indexes Fund of Funds aims to generate returns through investment in a combination of Index Funds and ETFs offered by Credit Suisse AMC in manner that tracks the returns of the MSCI World Index.
The scheme offers investors exposure to over 1500 constituents, diversified across 14 currencies that will avoid single currency risk. It also covers 56% of global GDP and 50% of world market capitalization.
The scheme will invest in overseas index funds and ETFs of developed countries; it allows investors to geo diversify across economies and markets. Investors may benefit from the global opportunities and exclusive themes, also hedge against currency depreciation. The fund manager will passively manage this fund of fund scheme to reduce tracking errors.
Although the scheme has a low correlation with the domestic market and mitigates the risk to your portfolio, it is prone to geo-political risk, currency risk, any government or monetary policy changes, and changes in social situation of the countries the underlying schemes are investing in. Such changes may affect the fund's performance and makes it a risky investment proposition.
This scheme is only suitable for investors with high-risk appetite who are seeking international allocation and can bear the volatility in the global markets. You need to have a long investment horizon and ensure your investment objective aligns with the fund.
Therefore, you may ensure the fund's suitability based on your risk appetite and investment horizon. Investors should not hurry to invest and consider HDFC Developed World Indexes Fund of Funds, once it has build a strong performance track record.
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Warm Regards,
Mitali Dhoke
Jr. Research Analyst
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