“In the first quarter of the last financial year, several products based on global innovation themes were launched. They seemed like very good themes and had a great story of diversification and innovation, using the benefit of technology. Now one year into the game, quite a few of these themes are at minus 25%, minus 30% return as well,” says Feroze Azeez, Deputy CEO, .
It is raining NFOs and it is definitely a good opportunity for investors but should one really have an NFO in their portfolio? What is your take?
We look at answers which mathematics gives us. In my opinion, the purpose of NFOs is for asset management companies to actually complete their bouquet of product offerings. They are right in launching them but from an investor standpoint I do not see any strong merit for an NFO to be in one’s portfolio, at least data says so.
It is raining NFOs and it is definitely a good opportunity for investors but should one really have an NFO in their portfolio? What is your take?
We look at answers which mathematics gives us. In my opinion, the purpose of NFOs is for asset management companies to actually complete their bouquet of product offerings. They are right in launching them but from an investor standpoint I do not see any strong merit for an NFO to be in one’s portfolio, at least data says so.
Second, the reason we have to substantiate it is because it does not have a track record. Not that the costs are any lower. There is a suspense with respect to cost because asset management companies are mandated by Sebi to charge as per the asset size of that specific scheme. They do not have an established expense ratio, an established portfolio constituent, an established track record. I do not know the behaviour of the fund manager in that specific scheme. So what is the merit of going for NFOs, I cannot fathom.
I would not be an investor in NFOs unless it stands out and there is no other fund which can actually be in the same category or at least a fund which can compete.
What will you say about the innovative themes that have been adopted by AMCs to launch NFOs?
Finance is all about understanding mathematics. Something may seem very interesting but may not transpire the way it appears. For example, in the first quarter of the last financial year, there were several products based on global innovation themes were launched. They seemed like very good themes and had a great story of diversification and innovation, using the benefit of technology.
Now one year into the game, quite a few of these themes are at minus 25%, minus 30% return as well. The Axis Global Innovation Fund on 28th May 2021 launched a fund of funds overseas fund. It is minus 21%. HSBC Global Equity Climate Change, which of course is a great theme, is minus 23%. Kotak Global Innovation Fund is minus 30.48%. Those themes were not looking irrelevant but you would want to wait because that is hard earned money which was being invested,
Not that, all of them would have turned into disasters but out of the 43 funds which we analysed and which have finished one year, 31 have given less than 6% return and 14 of them have given negative returns. So, what is the merit of not wanting to wait? These are open ended funds with a life of 10, 15, 20 years. What is the harm in waiting for the next next two-three years for it to establish its credibility?
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