Edelweiss Asset Management Company has launched a domestic and world healthcare index fund with MSCI. The new fund offer (NFO), which will open on Tuesday, marks MSCI’s entry into India’s passive fund space.
The fund will invest in 45 stocks and have a 70:30 domestic global split, giving investors the benefit of equity taxation in India. It will invest 70% of the funds in the top 25 healthcare stocks in India based on the market capitalization, while 30% will be invested in 20 US healthcare stocks.
The US stocks will consist of the top five scrips by market cap from four sub-industries—pharmaceuticals, healthcare equipment, biotechnology and life sciences tools and services.
“The Indian pharma space consists of three types of companies. First, those, which sell branded generics in India, usually, subsidiaries of global pharma companies. Second, those who sell generics in the US market, typically the largest pharma companies in India. Third, those who sell active pharmaceutical ingredients (APIs). The fund will capture all three components as well as global segments, which are not so present in India such as the large pharma majors who invest heavily in research,” said Harshad Patwardhan, chief investment officer-equities at Edelweiss Mutual Fund.
The selection of segments for the international portion of the fund has been active, but the subsequent rebalancing will be rules-based and not involve fund manager discretion, clarified Radhika Gupta, CEO, Edelweiss Mutual Fund.
She also said that the scheme will have an expense ratio of 1% in the regular plan and 0.4% in the direct plan.
Patwardhan clarified that although there has been a run-up of pharma stocks in 2020, this has been due to factors such as reduction of competitive pressures in the US market and increased investment in pharma research by governments and spending on healthcare by consumers. The run-up has also come after many years of low returns for the sector, he added.
Gupta advised investors to consider the fund as a part of their asset allocation. “For example, a portfolio with 50% allocation to healthcare would not be recommended, no matter how much you are bullish on healthcare as a theme,” she said.
“Thematic funds are not for everyone and only investors who are looking for slightly concentrated bets towards this space should invest,” said Prableen Bajpai, founder, Finfix Research and Analytics Pvt Ltd.
She asked investors who are already investing outside India to consider any overlap the fund may have with their existing portfolio.
However, experts took a positive view of the fund for investors who have decided on sector allocation. “Currently, the pharma and healthcare thematic funds in India offer no international exposure. For this reason, I would prefer a fund such as the Edelweiss one, for anyone who wants to take exposure to this theme. In addition, we continue to be bullish on healthcare as a sector,” said Prateek Pant, co-founder, Sanctum Wealth Management.