NFO Analysis – S&P 500 Index Fund
The global equity market has seen a sharp downturn from its recent high. It has also witnessed equally dramatic bounce back from its recent lows. For some, the current fall has presented an opportunity to enter the equity market at an attractive valuation including international stocks. The latest new fund offer (NFO) by Motilal Oswal AMC’s, Motilal Oswal S&P 500 Index Fund seeks to do the same for domestic investors. S&P 500 is the world’s largest index. S&P 500 index is widely regarded as the best single gauge of large-cap US equities. The index is designed to measure the performance of leading 500 companies listed in the United States and covers approximately 82 per cent of the available market capitalisation. It has exposure to all the 11 sectors and also to purely large-cap companies. It is a global index with 40 per cent of its investments coming from overseas.
The scheme is open for subscription till April 23. It is India’s first passive fund mirroring S&P 500 index. The minimum application amount is Rs 500 and in multiples of Re 1 thereafter.
Objective: The scheme seeks an investment return that corresponds to the performance of the S&P 500 Index, subject to tracking error. It is a passively managed, open-ended mutual fund scheme tracking the S&P 500 index of US.
Fund Manager: The scheme will be managed collectively by Herin Visaria and Abhiroop Mukherjee. This will be the first fund managed by them. While Herin Visaria will manage foreign securities, Abhiroop Mukherjee will look after the debt component.
Should you invest?
One of the main reasons why one chooses to invest in international stocks is to diversify. However, this diversification should be such that the correlation between the existing portfolio and the new asset is low. In the case of Indian investors, we assume the returns by Nifty as its existing portfolio and S&P 500 as a new asset. The long-term average correlation among them is 0.344. However, it has ranged between 0.86 and 0.55 since the year 2007.
Hence, it looks an attractive offering purely from a diversification perspective. Nevertheless, the exposure should be significant. However, we suggest you wait for a few months and check the track record in terms of tracking error and expense ratio to make the final investment decision.
The fund can be good for those goals, where you need to spend in dollar terms, such as international vacation or education of your child to some foreign university. Investment in this fund may help you to ward off currency risk.