Invesco AMC has launched a New Fund Offer (NFO) for a Fund of Fund (FoF) that invests in an overseas exchange-traded fund (ETF) with a blockchain theme. Blockchain and cryptocurrencies have been in the news for some time, and this is the first offering in the Indian market for exposure to this area.
Recent articles:
1 / 3
Should you choose the new tax regime from 1st April 2023?
2 / 3
How to invest in mutual funds which are taxed at slab rates from 1st April 2023
3 / 3
What should debt, international and gold mutual fund investors do now that these funds are taxable at slab rate?
Join our 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.
What is the fund?
The fund is an FoF that will invest in Invesco CoinShares Global Blockchain UCITS ETF units, an overseas ETF. The underlying fund has a 0.65% TER, and the FoF will have its expense ratio on top of that.
The ETF invests in companies worldwide that are involved in some fashion in the blockchain ecosystem. It does not hold crypto assets like Bitcoin directly. The closest analogy is a fund that invests in gold mining and gold refining companies and not in physical gold in any form. Investors who wish to get direct exposure to cryptocurrencies and not blockchain-related companies should not invest in this fund.
Since the FoF does not exist at the time of writing, the entire analysis below is regarding the ETF.
Details of the portfolio of the ETF
As the portfolio shows, this is a thematic fund with a heavy focus on technology stocks.
The CoinShares Blockchain Global Equity Index (BLOCK Index) aims to offer exposure to listed companies that participate or have the potential to participate in the blockchain or cryptocurrency ecosystem. The index aims to capture the potential investment upside generated by earnings related to the adoption of blockchain technologies or cryptocurrency.
Investors should note that the index explicitly invests in “listed companies” and not cryptocurrencies.
Past performance
We use market data from 22-Mar-19 (the date of inception of the ETF) till 16-Nov-2021 for the price analysis below. The EOD price of the ETF is considered in this analysis to replicate best the returns of the ETF instead of the NAV.
Point-to-point returns
(click to open in a new tab)
The performance of the Blockchain ETF has been extremely impressive compared to Indian and US stock markets even during this massive bull run. However, the return of the ETF is a lot less impressive compared to the major cryptocurrencies. We are using a log scale in the Y-axis due to the massive variations in returns.
(click to open in a new tab)
Rolling returns and risk
(click to open in a new tab)
As the chart shows, we see the same trend as earlier, where the ETF has outperformed the stock indices. But, again, the return relative to cryptocurrencies has been a lot lower. If we look at the rolling return chart, it is evident that the inherent risk in the ETF is a lot higher than major stock indices. Suppose we combine the two metrics by dividing the return by the risk. In that case, we get more conclusive evidence using risk-adjusted returns.
(click to open in a new tab)
As the chart shows, the risk-adjusted return has progressively worsened over time in the last year and is below broad stock market levels. Investors should be mindful of this fact before investing instead of looking at return numbers.
Who should invest in this fund?
The standard recommendation regarding NFO investment is
invest only if there is a niche that existing funds do not serve
wait until the NFO is over and the fund opens for the standard subscription so that the fund expenses are known
at least a few months of NAV history is available so that tracking error and alpha can be estimated
The third point is particularly relevant for international funds due to
dual TER on the FoF and then on the ETF
the underlying ETF will have price/NAV variations as well as tracking error
The last point is illustrated in the chart below, showing the deviation between the ETF NAV and the underlying index prices:
(click to open in a new tab)
An investor may consider this FoF under the following circumstances
they wish to take exposure to blockchain-related stocks
they understand the taxation of international funds
they have the necessary risk appetite to include this fund as a part of a satellite portfolio and are willing to take a significant exposure in percentage terms
Note: The AMC has deferred the launch on 17-Nov-2021 due to regulatory uncertainty regarding cryptocurrencies in India. As per the AMC statement:
From the developments of the last few days, Indian lawmakers have been meeting participants in the country’s digital assets industry, which will likely culminate in a new legislative framework being formulated.
FAQs on NFO investing
NAV of ₹10 is a benefit
NAV of a mutual fund is calculated as (fund assets - expenses)/Units.
For an NFO, the number of units issued is adjusted to ₹10.00 as a convention. It does not mean that the NFO is offering stocks cheaply. Two funds with the same assets and expenses will give the same return irrespective of their NAV values.
NFO is a unique investment opportunity
Unlike a stock IPO, where listing gains (and losses) are possible, NFOs do not offer a new opportunity all the time. Given that there are 44+ AMCs in India, it is highly likely that a similar fund already exists and has a credible track record.
Thematic or certain international funds are sometimes an exception to this rule. Investors can evaluate if they need the unique exposure in their portfolio on a case by case basis.
Apart from these, investors should refer to this post to avoid some common mistakes while investing in mutual funds.
What's next? You can join our 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.
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:
Portfolio ConstructionReview
How to use the RBI Retail Direct Scheme to get guaranteed income?
This post describes RBI’s new Retail Direct Scheme and how you can use it to build a guaranteed income stream.
Published: 16 November 2021
18 MIN READ
ReviewInternational Investing
Should you invest in PGIM Real Estate fund NFO?
This post discusses new Real Estate feeder funds being launched in India and whether investors should invest in such funds.
Published: 18 November 2021
7 MIN READ
Latest articles:
Choosing Investments
SENSEX vs PPF report card 2023: should you invest 1.5 lakhs in PPF in April?
This article compares how the PPF has performed against the SENSEX since 1979 to help investors decide if they should invest a lump sum in PPF in April 2023.
Published: 2 April 2023
5 MIN READ
TaxCalculator
Should you choose the new tax regime from 1st April 2023?
This article describes how to use the Arthgyaan goal-based investing tool as a calculator to determine if switching to the New Tax Regime makes sense.
2. Use our goal-based investing template to prepare a financial plan for yourself OR use this quick and fastonline calculator to find out the SIP amount and asset allocation for your goals.
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 a Blockchain feeder fund? first appeared on 17 Nov 2021 at https://arthgyaan.com
