MF Query Board

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I wish to know more about the recently launched Mirae Asset NYSE FANG+ ETF FoF as I am planning to invest in it to gain international exposure.

- Pari Shukla

To begin with, let us first understand the objective of the fund and try to match it with your aspiration. The investment objective of this scheme is to generate returns, before expenses, that will correspond with the performance of NYSE FANG+ TRI, subject to any tracking error and foreign exchange movement. Your objective is to have international exposure which this fund fulfils as it invests in the technology companies of the US market. Taking into account its asset allocation, it will not invest less than 95 per cent in securities that are included in the NYSE FANG+ index. Further, NYSE FANG+ index includes funds such as Facebook, Amazon, Netflix, Alphabet (Google), Apple, Tesla and Twitter.

Even Baidu, Nvidia and Alibaba contribute to this index. Let us now look at its investment strategy. The Mirae Asset NYSE FANG+ ETF is a passively managed fund which will make investments in stocks in a proportion that would match as closely as possible the weights of stocks in the NYSE FANG+ index. NYSE FANG+ index is an equal-dollar weighted index that represents a segment of the technology and consumer discretionary sectors consisting of 10 highly-traded growth stocks of technology and technology-enabled companies. Therefore, the investment strategy of this scheme is pretty straightforward as it will be investing in a basket of securities forming part of the NYSE FANG+ index in similar weight proportion.

Hence, the main strategy would be to reduce tracking error to the least possible by rebalancing of the portfolio on a regular basis, taking into account the change in the weights of stocks in the underlying index as well as the incremental collections and redemptions in the scheme. Moreover, in order to meet liquidity requirements, the scheme may also invest in debt and money market instruments. The next most important thing to know about any fund is its fund manager. It is said that to some extent the performance of the fund depends on the decisions taken by the fund manager. Even though this scheme is managed by Ekta Gala, the underlying ETF is managed by Siddharth Srivastava.

Therefore, there is little to do for Ekta Gala apart from rebalancing the investments. Thus, it makes more sense to know about the fund manager of the underlying ETF. Siddharth Srivastava is the Head – ETF Products, Mirae Asset Mutual Fund with over 10 years of experience in the field of financial services and stock markets. At present he does not manage any other schemes of the fund house. So, when it comes to investing in international funds, we do believe that you should have exposure to funds investing internationally as it will help you to diversify your portfolio. Moreover, it also helps you to reduce risk to some extent. Even for those who are planning to send their children abroad for education may consider having exposure to international funds.

That said, Mirae Asset NYSE FANG+ ETF FoF is quite a concentrated portfolio where the investment is spread across only 10 companies. Not just that, it is concentrated on the sectoral front wherein this scheme is likely to pick companies purely from the technology and consumer discretionary sectors. And speaking about sectors, they run in cycles and no sector outperforms all the time. There would be a slowdown as well. Also, as it invests just in US-based companies, the fund is exposed to country-specific risks. Therefore, before investing in it you should be aware of all these things. We believe an ideal international fund is the one that invests across geographies and sectors. Furthermore, rather than investing in FoF, try to invest in ETF as the expense ratio of FoF would be higher than that of ETF.

Is there any relevance of selecting stocks based on PE and PB ratios? And does it make sense to select mutual funds based on that?

- Ramesh Prabhakar

When it comes to stock selection, the price-toearning (PE) and price-to-book (PB) ratios do have relevance as they are some of the most crucial valuation metrics. However, selecting funds just based on these two metrics can be quite dangerous. This is because if you limit yourself looking at stocks with low PE ratio in an industry which is not growing rapidly, you might not get the desired result. Moreover, low PE does not always mean a quality stock. Therefore, looking at its overall fundamentals, the sector story and economy are also quite important.

Speaking about mutual funds, though we cannot say that PE and PB are irrelevant, they certainly are not that important. There are various mutual fund research websites that do provide these valuation metrics, but it would not be that relevant while selecting funds. For instance, if you look at funds having lower PE ratio, most of the times they would be value funds or funds following a value strategy. Therefore, it makes no sense to look at a fund’s PE or PB ratio to take any decision. However, this can prove to be relevant in case of index funds but again that is more like timing your investment, which may not be a prudent way to approach mutual fund investment.