NFO analysis: Axis Healthcare ETF

Henil Shah
NFO analysis: Axis Healthcare ETF

Axis Mutual Fund has launched Axis Healthcare Exchange Traded Fund (ETF). This is a passive investment offering from Axis Mutual Fund that is dedicated to the healthcare sector. It is an open-ended equity scheme that seeks to replicate or track Nifty Healthcare Total Return Index (TRI). 

In a press release, Chandresh Kumar Nigam, MD & CEO of Axis Mutual Fund said, “As a responsible fund house, we want to develop, introduce and provide the products that are relevant in the current context as well as in the long-term. Accordingly, we recognise the need to offer investors a choice of strategies including robust passive products. Our ETF strategy relies on offering highly innovative yet relatable products to our target investors and we have already seen a number of launches in this space in the last year. The launch of Axis Healthcare ETF continues to take forward our endeavour to build up passive product suite over time along with our target of being the preferred manager to investors across the entire spectrum of active & passive products.” 

Axis Healthcare ETF is open for subscriptions up to May 10, 2021. It will again re-open within five business days from the date of allotment. 

Click here to access its scheme information document. 

 

Objective 

The investment objective of this scheme is to provide returns before expenses that closely correspond to the total returns of Nifty Healthcare TRI, subject to tracking errors. 

 

Asset allocation 

Instruments 

Indicative allocations
(per cent of net assets) 

Risk Profile 

Minimum 

Maximum 

High/medium/ 

low 

Equity instruments covered by Nifty Healthcare TRI 

95 

100 

High 

Debt & money market instruments 

Low to medium 

 

The above asset allocation shows that at all times, it will not invest less than 95 per cent in securities that are included in the Nifty Healthcare Index.  

 

Benchmark 

The performance of this scheme will be benchmarked against the performance of Nifty Healthcare TRI. However, its true peers would be funds that purely invest in the pharmaceutical and healthcare sectors. Moreover, Nifty Healthcare Index includes several stocks such as Abbott India, Cipla, Divi’s Lab, Ipca Lab, Lupin, Dr Reddy’s Lab, Cadila Healthcare, etc. However, below is a list of stocks that forms the top 10 holdings of the fund. 

 

Company’s name 

Weight (per cent) 

Sun Pharmaceutical Industries Ltd 

15.22 

Dr Reddy's Laboratories Ltd 

13.50 

Divi's Laboratories Ltd 

11.15 

Cipla Ltd 

9.96 

Apollo Hospitals Enterprise Ltd 

6.93 

Aurobindo Pharma Ltd 

5.94 

Lupin Ltd 

5.54 

Laurus Labs Ltd 

3.72 

Biocon Ltd 

3.63 

Cadila Healthcare Ltd 

3.15 

 

 

Investment strategy 

The main aim of this scheme is to invest in stocks, which comprise the underlying index and shall endeavour to track the benchmark index. In order to meet the liquidity and expense requirements, this scheme may also invest in debt and money market instruments. However, such investments would be capped at 5 per cent. Axis Healthcare ETF seeks to invest in stocks forming a part of Nifty Healthcare TRI in the same ratio as per the index. Events such as constituent stocks turning illiquid in the cash market, the exchange changing the constituents, lag in the receipts of large dividends, etc. tend to increase the tracking error. In such events, in order to minimise the long-term tracking error, it may be more prudent for the scheme to take exposure through derivatives of the index itself or its constituent stocks. 

 

Fund manager 

This scheme will be managed solely by Jinesh Gopani, who is Head – Equity, Axis Mutual Fund. Gopani has a total experience of 16 years in the capital markets, of which, 8 years are in equity fund management. Below are the details and performances of other funds managed or co-managed by Jinesh Gopani. 

 

Funds 

Trailing returns (per cent) 

1-year 

3-year 

5-year 

Axis ESG Equity Fund 

41.20 

Axis Focused 25 Fund 

46.46 

11.29 

17.06 

Axis Growth Opportunities Fund 

56.13 

Axis Long Term Equity Fund 

43.51 

12.00 

15.52 

 

Our take 

The five-year period spanning from the year 2010 to 2015, was the best growth years for the healthcare sector that is primarily driven by the pharmaceutical companies. Largely this can also be accredited to the fact that many global drugs went off-patent during the period, as Indian companies got the benefit of generic licensing. However, post reaching the peak in the year 2015, the sector witnessed underperformance while other sectors such as consumer durables ruled. It was the year 2020 when the healthcare sector broke out its five-year losing streak. 

According to the recent report from the NITI Aayog report, the healthcare industry has become one of the largest in terms of both revenue and employment in India. Since the year 2016, it has shown a compounded annual growth rate (CAGR) of 22 per cent, employing over 47 lakh people directly. Moreover, the report says that the healthcare sector has the potential to generate over 27 lakh additional jobs between 2017 and 2022. 

Moreover, even the government is undertaking sustained reforms to strengthen the healthcare sector. On the policy front, the Atmanirbhar Bharat Abhiyaan packages include several short-term and long-term measures for the health system, including production-linked incentive (PLI) schemes in order to boost the domestic manufacturing of pharmaceuticals and medical devices. Therefore, we can say that, still, there is steam left for the healthcare sector. 

Coming to the fund, we presently have nine odd funds that are purely dedicated to the healthcare sector, which possess a history of more than Axis Healthcare ETF. Besides, these funds are actively managed funds and costs higher. Thus, comparatively, Axis Healthcare ETF does have an edge. However, it would be interesting to see how it tracks its underlying index and deviates less. If you are someone who actively manages his mutual fund portfolio, then you can consider having a sector fund in place. However, others, who are on a path to achieve financial goals, should non-finitely avoid investing in them. 

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