AUM of ETFs nearing ₹1.5 lakh crore

An ETF is a tradable instrument that tracks an index like Nifty/Sensex, a commodity like gold, bonds, or a basket of assets. ETFs are very similar to mutual funds, the main difference being the former is listed on exchanges and trade just like stocks. It would be expensive for an investor to buy all the stocks of an index or impossible for him to buy a certain quantity of a commodity for a low amount, say ₹1,000.

An ETF solves this problem by:

• Giving the investor access to many stocks across various industries
• Allowing the investor to invest in a small quantity of the commodity at a reasonable price

ETFs usually tend to have low expense ratios since they track an underlying index or commodity.

While ETFs are still a small fraction of the total AUM, market players say the share of passive investment vehicles will only grow in the years ahead.

94% of the AUM is invested in equity schemes, the rest is invested in debt & gold schemes. Experts say investors may increasingly prefer ETFs over actively-managed large-cap schemes as the return scorecard in recent years has been in favour of the former.

Investing in ETFs

All Weather Investing: The All Weather Investing (AWI) smallcase is a recession-proof long-term investment strategy. The smallcase, via exchange-traded funds (ETF), invests in three different asset classes – equity, debt & gold. Investors can invest in the All Weather smallcase regardless of market conditions. By investing part of the corpus in debt & gold instruments, the smallcase reduces fluctuation in the short-term; the equity component allows the smallcase to generate wealth steadily over the long-term.  

Top 100 Stocks: The Top 100 Stocks smallcase provides exposure to a diversified basket of large-cap stocks using ICICI Prudential Nifty ETF & Nippon India ETF Junior Bees. Large-cap companies are usually well established and are best suited for long-term wealth creation. Adding such stocks to the portfolio increases the stability of the portfolio as their stock prices are not very volatile. The smallcase weights the ETFs according to a proprietary algorithm that attempts to minimize the risk of the smallcase. 

Equity & Gold: The Equity & Gold smallcase invests in a combination of equity and gold exchange-traded funds (ETFs). The smallcase invests in large-cap companies using Nippon India ETF Nifty BeES. 

Nippon India ETF Gold BeEs provides exposure to gold. Gold is the best form of hedge against inflation and geopolitical uncertainties. Since the price of gold is negatively correlated with the price of the stock, the former is a very effective portfolio diversifier.

ICICI Prudential smallcases: These smallcases provide exposure to large-cap and mid-cap stocks, gold as well as smart beta ETFs using ICICI Prudential ETFs, and are suitable for wealth creation over the long-term.

Good quality, low beta stocks

Volatility measures the risk of security. A stock with higher volatility will see its price fluctuate rapidly within a specific period, whereas a low volatility stock will not see as much price fluctuation. Higher the volatility, the higher the perceived risk. 

Beta is one of the ways of measuring volatility. The stock market’s beta is considered to be 1. Any stock with beta of less than 1 would be less volatile than the market. Good quality, low beta stocks ensure that the portfolio is not very sensitive to market volatility. The Safe Haven smallcase consists of stocks whose beta is less than 0.65. 

7 out of 8 companies in the Safe Haven smallcase have more than 10% shareholding by institutional investors. This indicates high management quality, good performance track record and expectations of bullish performance going forward. 

Momentum investing is a strategy based on the observation that stock movement trends can persist for some time. The strategy attempts to capitalize on this trend by buying stocks that have been trending up and selling ones that are trending down.

The Safe Haven smallcase has been trending up over the previous 6 months and has returned 9.4% compared to Nifty Midcap returns of -4.0%.

Markets update

After a see-saw trading week, benchmark indices closed flat. Nifty gained 0.16% and closed at 11,914.4 whereas Sensex closed up 0.01% at 40,359.4. On Wednesday, during intraday trading, Sensex touched an all-time high of 40,816.

On Wednesday, government sources announced strategic disinvestment in five public sector units – BPCL, Shipping Corporation of India, CONCOR, Tehri Hydro Development Corporation of India & North Eastern Electric Power Corporation Limited.

The Union Cabinet also allowed telecom operators to defer payments for spectrum purchases by up to 2 years.