Should you invest in the DSP Global Innovation Fund NFO?
A new Fund of Fund wants to capture the alpha from innovative technology companies globally. Should you invest?
Should you invest in the DSP Global Innovation Fund NFO?
Posted on 15 Jan 2022
Author: Sayan Sircar
11 mins read
đąJoin 2300+ readers on WhatsApp and get new post notifications!
A new Fund of Fund wants to capture the alpha from innovative technology companies globally. Should you invest?
đ Topics covered:
- Catch them young
- FOF structure
- Past performance
- Fund portfolio drill down vs major indices
- Source of active risk
- Should you invest in the DSP Global Innovation Fund NFO?
Catch them young
After the Motilal Nasdaq Q50 ETF NFO, here is another one with the same âCatch them youngâ tag line. Read more: Should you invest in the Motilal Nasdaq Q50 ETF NFO?
âCatch them youngâ is literally the title of the second slide of a deck I got by email. The slide discusses how by the time a disruptive technology company is included in a major index, the major gains have already come using examples like Apple, Amazon, Tesla Adobe, and Netflix. For those unaware of this phenomenon, it is called survivorship bias. The presentation goes on to talk about innovation, disruption and related themes.
The NFO of this fund, which is a fund-of-fund investing in a mix of global technology/innovation/disruption themes via ETFs and active funds, runs from 24-Jan to 7-Feb, 2022.
FOF structure
The DSP Global Innovation Fund (DSP GIF) will be investing in the following funds:
| Fund | Weight | TER (Nov-2021) | Type |
|---|---|---|---|
| Morgan Stanley US Insight Fund | 15% | 0.81% | Active |
| BGF World Tech Fund | 20% | 0.75% | Active |
| iShares Semiconductor ETF | 15% | 0.43% | Passive |
| Nikko AM ARK Disruptive Innovation fund | 15% | 0.82% | Active |
| Bluebox Global Technology Fund | 20% | 1.18% | Active |
| Ishares Nasdaq 100 UCITS ETF | 15% | 0.33% | Passive |
The SID says that the fund choices and weights can change as per the fund managerâs discretion.
The fund will be benchmarked against the MSCI ACWI index. This is a rather strange choice since a thematic fund like this is being benchmarked against the World stock market index. Therefore, the AMC should choose a more appropriate benchmark, maybe against the MSCI ACWI IMI Disruptive Technology Index (details here).
It should be noted that as per the presentation documents, the weighted TER of the underlying funds is 0.74%. The FoF will have its own expense ratio on top of that making it a fairly expensive way to get exposure to the disruptive technology theme.
Past performance
We have been provided past price performance of the underlying funds.
We have added the S&P500, Nasdaq 100 and MSCI ACWI IMI Disruptive Technology Index values in INR for comparison.
There are some challenges with the data here:
- two of the six funds in the list, BGF World Tech Fund and Nikko AM ARK Disruptive Innovation fund, have limited histories
- individually, some of the chosen funds are highly volatile
- the basket of six funds (DSP GIF) provides around 3% of extra returns over the benchmark MSCI ACWI at almost double the volatility. If we consider the performance against the more well-known technology-focused indices, like the Nasdaq 100, we see that the fund has provided higher returns at similar levels of risk
- if we remove the effect of COVID on the technology sector by removing 2020 returns, the average returns of the fund drops to the level of MSCI ACWI World where the average yearly return falls from 13.28% to 9.79%
The last point is called the recency effect since a lot of the of gains in the stock, and as a result, the attractiveness of the theme comes from something that happened in the recent past. The risk of using recent returns when choosing a theme is
- a lot of the high returns have already taken place. The right time to enter is to get in before the eye-popping returns come
- entering at this stage implies that new investors are entering at high valuations that require that the companies keep growing at historical rates
- COVID related themes like WFH, supply chain disruptions and increased retail trading activity that has been the drivers of recent returns for the theme may not last for a long time
- If technology stocks enter bubble territory, the drawdowns can be severe, as shown in the chart below:
Fund portfolio drill down vs major indices
Using portfolio disclosures of the underlying funds, we can construct a tentative portfolio of the DSP GIF. Given that it is difficult to get the entire underlying portfolio of these funds, the numbers in the table for DSP GIF are minimum values. For example, if Amazon is present in the top 10 in Fund X and below top 10 in Fund Y, the total will not count the contribution from Amazon from Fund Y and the total for Amazon will be slightly lower than the actual value.
Top 10 stocks
We see that top 10 stocks constitute around 20% of the portfolio, and the fund avoids the usual concentration found in the technology heavy indices.
| Companies | DSP GIF | N100 | S&P500 | MSCI ACWI IMI DT |
|---|---|---|---|---|
| Microsoft | 3.49% | 9.84% | 5.97% | 5.78% |
| Apple | 2.63% | 11.78% | 6.83% | 5.06% |
| Tesla | 2.56% | 4.43% | 2.25% | 0.00% |
| Lam Research Corp | 1.75% | 0.66% | 0.24% | 0.00% |
| Broadcom | 1.66% | 1.77% | 0.64% | 0.00% |
| NVIDIA | 1.65% | 4.02% | 1.75% | 4.77% |
| Alphabet | 1.64% | 7.15% | 4.11% | 5.06% |
| Shopify | 1.49% | 0.00% | 0.00% | 0.00% |
| Applied Materials | 1.45% | 0.98% | 0.36% | 0.00% |
| Amazon.com | 1.44% | 6.83% | 3.60% | 4.64% |
Stocks below top 10
Here we see some of the premise of having sufficient allocation to upcoming stocks, which have the potential for high returns since they are in the disruptive technology field.
| Companies | DSP GIF | N100 | S&P500 | MSCI ACWI IMI DT |
|---|---|---|---|---|
| Block (Square) | 1.36% | 0.00% | 0.00% | 0.00% |
| Zoom | 1.26% | 0.28% | 0.00% | 0.00% |
| ASML Holding | 1.25% | 0.41% | 0.00% | 0.00% |
| Marvell Technology | 1.20% | 0.48% | 0.00% | 0.00% |
| Qualcomm | 1.18% | 1.42% | 0.52% | 0.00% |
| Coinbase Global | 0.98% | 0.00% | 0.00% | 0.00% |
| Unity Software | 0.92% | 0.00% | 0.00% | 0.00% |
| Snap | 0.89% | 0.00% | 0.03% | 0.00% |
| Snowflake | 0.88% | 0.00% | 0.00% | 0.00% |
| Intel | 0.87% | 1.54% | 0.57% | 0.00% |
| Roku | 0.82% | 0.00% | 0.00% | 0.00% |
| Teladoc Health | 0.81% | 0.00% | 0.00% | 0.00% |
| TSMC Ltd | 0.78% | 0.00% | 0.00% | 3.88% |
| Cadence Design Systems | 0.78% | 0.32% | 0.12% | 0.00% |
| Synopsys | 0.78% | 0.35% | 0.13% | 0.00% |
| Adobe | 0.77% | 1.72% | 0.63% | 0.00% |
| Cloudflare | 0.76% | 0.00% | 0.00% | 0.00% |
| Advanced Micro Devices | 0.76% | 1.13% | 0.41% | 0.00% |
| DoorDash | 0.75% | 0.00% | 0.00% | 0.00% |
| 0.74% | 0.00% | 0.08% | 0.00% | |
| Meta Platforms | 0.73% | 4.83% | 1.97% | 0.00% |
| Mercadolibre | 0.72% | 0.42% | 0.00% | 0.00% |
| Micron Technology | 0.65% | 0.72% | 0.27% | 0.00% |
| KLA Corp | 0.61% | 0.45% | 0.16% | 0.00% |
| Spotify Technology | 0.59% | 0.00% | 0.00% | 0.00% |
| Roblox | 0.54% | 0.00% | 0.00% | 0.00% |
| Bill.com Holdings | 0.54% | 0.00% | 0.00% | 0.00% |
| Twilio | 0.53% | 0.00% | 0.00% | 0.00% |
| Kakao Corp | 0.41% | 0.00% | 0.00% | 0.00% |
| PayPal Holdings | 0.37% | 1.42% | 0.55% | 2.48% |
| Cisco Systems | 0.27% | 1.78% | 0.65% | 0.00% |
Source of active risk
The following are the sources of active risk in this fund:
- allocation between the underlying funds. There is no formula based allocation rule defined making choosing fund weights an active decision
- choice of the underlying funds. Disruptive technology is a theme, and chasing this theme will require a good amount of analysis and identifying companies before they become big
- 70% of the fund is held in active funds. The decisions by these fund managers will have a considerable impact on the future performance of this fund
Should you invest in the DSP Global Innovation Fund NFO?
The standard recommendation regarding NFO investment is
- invest if there is a niche that existing funds do not serve. This fund fills a possible niche of investing in the disruptive technology niche
- wait until the NFO is over and the fund opens for the standard subscription so that fund expenses are known
- at least a few months of NAV history is available so that tracking error and alpha can be estimated
In summary, investors should avoid investing:
- if they are wary of valuations, taking high risk/high return bets on the technology sector
- if they are looking to make a quick buck since market timing is difficult
- if they are looking for a passive solution, the Nasdaq 100 will be a better fit
Alternative investments in the same theme
The fund names below are not recommendations and are mentioned below to start the research process. Indian investors looking at investing in technology and disruptive innovation themes already have a few options in the market:
- passive solutions like the Nasdaq 100 and Nasdaq Q50. Read more: Should you invest in the Motilal Nasdaq Q50 ETF NFO?
- active innovation themed funds from Kotak (investing into Wellington Global Innovation fund) and Axis (investing into Schroder ISF Global Disruption fund)
- the LRS route may offer more options for some investors. This article discusses options for investing in US markets in more detail: What is the best way to invest in US stocks?
What's next? You can join the Arthgyaan WhatsApp community
You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.To understand how this article can help you:
If you have a comment or question about this article
The following button will open a form with the link of this page populated for context:If you liked this article, please leave us a rating
The following button will take you to Trustpilot:Discover an article from the archives
Worked out case studies for goal-based investing
-
Case study: how can this middle-aged investor with two children plan for retirement and children's goals?
This article shows how a single-income middle-aged couple with two small children reach their retirement and childrenâs goals.
-
Case study: can this double income single kid family reach FIRE at 50?
This article shows how a double-income couple with a 2-year old reach their FIRE dream at the age of 50.
-
Case study: how a family in their mid-30s with a newborn kid can FIRE and invest in real estate?
This article shows how a double-income couple with a newborn child can invest for their future goals of FIRE and real-estate investment.
-
Case study: how this double income recently married family can perform DIY goal-based investment planning
This article shows how a young just-married couple can invest for future goals using the Arthgyaan goal-based investing tool.
-
Case Study: How should couples in their 40s with a new baby plan their financial future?
Did you welcome a bundle of joy in your 40s? This article will discuss ways of planning the childâs (and yourâs financial future)
-
Case study: how this double income single kid family can perform DIY goal-based investment planning
This article shows how a very typical salaried couple with one child can invest for future goals using the Arthgyaan goal-based investing tool.
Previous and next articles:
Loans
My EMIs take up all my salary. How do I start investing?
This article shows a few ways to avoid and escape from EMI traps to be able to invest via goal-based investing.
Published: 13 January 2022
14 MIN READ
News
Motilal Oswal stops fresh lump sum investments into international funds. What now?
What should investors do now that Motilal Oswal has restricted investing in its international funds? The SEBI rule and alternatives explained.
Published: 16 January 2022
4 MIN READ
Latest articles:
Portfolio Construction
How much lower portfolio value do you end up with if you do not invest for a few years in between?
This article shows how to understand the impact on your portfolio if you stop investing for a few years between today and retirement.
Published: 24 April 2024
4 MIN READ
House Purchase
Should you withdraw from your EPF to buy a house?
This article explains what happens if you withdraw from your EPF to buy a house and who should or shouldnât withdraw from EPF for this reason.
Published: 21 April 2024
7 MIN READ
Topics you will like:
Asset Allocation (21) Basics (8) Behaviour (12) Budgeting (12) Calculator (25) Case Study (6) Children (17) Choosing Investments (40) FAQ (12) FIRE (13) Gold (21) Health Insurance (5) House Purchase (29) Insurance (16) International Investing (12) Life Stages (2) Loans (17) Market Data (7) Market Movements (16) Mutual Funds (46) NPS (7) NRI (19) News (18) Pension (8) Portfolio Construction (53) Portfolio Review (27) Reader Questions (8) Real Estate (7) Research (5) Retirement (38) Review (15) Risk (6) Safe Withdrawal Rate (5) Set Goals (28) Step by step (15) Tax (59)Next steps:
1. Email me with any questions.
2. Use our goal-based investing template to prepare a financial plan for yourself.Don't forget to share this article on WhatsApp or Twitter or post this to Facebook.
Discuss this post with us via Facebook or get regular bite-sized updates on Twitter.
More posts...Disclaimer: Content on this site is for educational purpose only and is not financial advice. Nothing on this site should be construed as an offer or recommendation to buy/sell any financial product or service. Please consult a registered investment advisor before making any investments.
This post titled Should you invest in the DSP Global Innovation Fund NFO? first appeared on 15 Jan 2022 at https://arthgyaan.com
We are currently at 394 posts and growing fast. Search this site: Copyright © 2021-2024 Arthgyaan.com. All rights reserved.