Edelweiss AMC launches Indo-global healthcare index fund; should you invest?
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Edelweiss AMC launches Indo-global healthcare index fund; should you invest?

With the construction of MSCI India Domestic & World Healthcare 45 Index Fund for Edelweiss, the MSCI has forayed into the Indian market for the first time

  • October 6, 2020  
  • |  
  • UPDATED   14:11 IST
Edelweiss AMC launches Indo-global healthcare index fund; should you invest?
The NFO starts on Tuesday and will stay open till October 28

Edelweiss Asset Management Company (AMC) on Monday launched a New Fund Offer (NFO) -- MSCI India Domestic & World Healthcare 45 Index Fund - in association with the global index provider MSCI Inc. The NFO starts on Tuesday and will stay open till October 28. This is the first index fund in the thematic category.

With the construction of MSCI India Domestic & World Healthcare 45 Index Fund for Edelweiss, the MSCI has forayed into the Indian market for the first time. The new fund that will track the MSCI India Domestic & World Healthcare 45 Index will give investors an opportunity to invest in some of the world's largest healthcare companies listed in the US and India.

The index will give 70 per cent weightage to Indian Healthcare, comprising top 25 stocks based on full market cap. The sub-sectors include Hospitals, Diagnostics, Life Science Tools & Services, Biotechnology and other Healthcare services. The remaining 30 per cent weightage will be on 20 stocks listed in the US, which comprise top 5 stocks based on full market cap from 4 sub-industries each - Pharmaceuticals, Healthcare Equipment, Biotechnology and Life Sciences Tools and Services. A few of the top holdings of the underlying fund include Apollo Hospitals, CIPLA, Dr. Reddy's Laboratories, Jubilant Life science, Biocon Ltd., and PFIZER.

How is it different from other healthcare funds?

Being an index fund, it doesn't require active participation by fund managers, hence the cost will be lower. Secondly, it is the only sectoral fund with a global exposure. "Our aim is to launch right products. We often receive questions from investors on active versus passive or domestic versus international investing. We believe these lines are blurring," says Radhika Gupta, MD & CEO, Edelweiss Asset Management Limited.

"This index fund is not just a return story, but also provides diversification in the healthcare space. It combines two themes that are unrelated. One is innovation and research story and second is growth and consumption story. When you put individual ideas together, you get a product, that has superior risk profile than a pure India healthcare funds," says Gupta.  

Should you invest?

Healthcare stocks have performed phenomenally since March when COVID-19-induced lockdown affected other sectors. It is obvious to wonder if more steam is left to the rally. To this, Edelweiss says that the analysis done on the MSCI India Domestic & World Healthcare 45 Index between June 2008 and August 2020 shows five-year rolling returns have bounced back from negative territory to nearly 4 per cent, but are still way below long-term average of 17.5 per cent CAGR

 "Pharma stocks have indeed done well from the beginning of this year, but you need to have a medium-term perspective. The big boys of the sectors had massively underperformed in CY17, CY18 and CY19. So, next three to five years are going to be significantly better," says Harshad Patwardhan, CIO, Equities - Edelweiss AMC.

However, note that the exposure to sectoral fund is a risky affair. Most sectors being cyclical in nature go through ups and downs of a business cycle. And considering the global exposure in this fund, you also have to take into account rupee-dollar currency moves.

"Only those who can closely track the trends in the healthcare sector, time their investments and redemptions in this fund accordingly and are comfortable with the impact of currency volatility on their investments should opt for this fund. Else, stick to good diversified equity funds with strong fund management teams. Diversified equity funds can freely increase or decrease their exposure to the healthcare segment depending on its upside potential and downside cyclical risk, saving you from the effort involved in timing your entry and exit in the healthcare segment," says Sahil Arora - Director, Paisabazaar.com.

The initial investment in the fund will be Rs 5,000 per application with multiples of Re 1 subsequently, with no exit load. The fund will be managed by Hardik Varma for domestic investments and Mayur Dharmshi for overseas investments.