I have received a note from ABSL MF announcing their ABSL Nifty Next 50 ETF. The note outlines the growing category of ETFs around the world and in India. One statement caught my eye.
Popularity of ETFs have increased particularly in 2018, when Large Cap funds across industry found it difficult to beat benchmarks.
This is a big confession coming out of one of the largest fund houses by size.
Now, I am wondering if this is a signal to the existing investors in the large cap fund of ABSL to exit and money to the Nifty Next 50 or any other large cap index fund / ETF.
The large cap fund from ABSL is the Frontline Equity Fund. At Rs. 20,000+ crores in AUM, it is one of the largest fund schemes in the industry. Not just that for that size of the fund, it commands one of the highest expense ratios – 1.17% for the direct plan and 1.97% for the regular plan.
The fund is manned by the top guy, CIO – Mahesh Patil.
Before the SEBI re-categorisation and stock universe definition, the fund picked its investments from the top 200 space. Post SEBI guidelines came into effect, it is now restricted to the top 100 space.
The fund has failed to outperform its benchmark over the past few years. You can refer to any of the online sites such as ValueResearch or MorningStar to check this fact.
As mentioned in ABSL’s own the ETF note, going forward, the fund house is unsure of outperformance. The high expense ratio will definitely work against this effort.
That’s where the new Nifty Next 50 ETF comes into the picture. Mind you, ABSL already has a giant cap, Nifty 50 ETF, but now it is expanding its bouquet of passive funds / ETFs. Why?
You see, a business mind is at work here. The shifting trend towards passive investing is visible. Online platforms, discussion forums and social media are abuzz with how the large cap space is becoming difficult to generate alpha.
The fund house becomes aware of this buzz and launches a product to get investors money and pocket a fee on it. Neat!
It’s the money, stupid.
Well, the fund house will mind its business. You have to mind yours.
As dramatic as it may sound, I ask the question – if the found house is losing faith in its own proposition of the actively managed large cap scheme, how do you retain yours? Is it not time to exit the large cap ABSL Frontline Equity Fund?