Edelweiss MSCI India Domestic & World Healthcare 45 Index Fund: Passively Rides the Healthcare Wave - Outside View by PersonalFN

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Edelweiss MSCI India Domestic & World Healthcare 45 Index Fund: Passively Rides the Healthcare Wave
Oct 15, 2020

Healthcare and Pharma sector is of prime importance for the welfare of an individual. Due to the increase in life span, and growing population, higher rates of chronic health conditions and exponential yet costly advances in digital technology continue to push healthcare costs sky high.

After the recent pandemic this sector has got a major boost that was ignored earlier. It has led many countries including India to focus deeply on its healthcare infrastructure. Looking at this Edelweiss Mutual Fund has launched Edelweiss MSCI India Domestic & World Healthcare 45 Index Fund. It is a passive fund investing in stocks comprising the underlying MSCI India Domestic and World Healthcare 45 Index which constitutes 45 healthcare sector stocks listed across India and the US market.

[Read: Are Active Funds Better Than Passive Funds?]

As per the fund's presentation, the global healthcare industry was worth $8.45 trillion in 2018 and is expected to touch over $10 trillion by 2022. The Indian healthcare sector is expected to record a three-fold rise, growing at a CAGR of 22 per cent during 2016-2022, to reach US$ 372 billion in 2022, from US$ 110 billion in 2016. US market is the key constituent and spends highest on healthcare, thus has 42% share in global pharma market with 5% share in global population.

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Thus, Edelweiss Mutual Fund is of the view that Edelweiss MSCI India Domestic & World Healthcare 45 Index Fund, a thematic index fund can capture the growth opportunities present for investors over a long term.

As per the asset allocation, the fund will invest within the prescribed limits. But it will mainly invest in stocks present in MSCI India Domestic Healthcare with a weight of 70% allocation to India's top 25 stocks based on market cap Size and are from Pharma, Hospitals, Diagnostics, Life Science Tools & Services, Biotechnology and other Healthcare services.

The remaining 30% allocation will be from World Healthcare that consists of Global Healthcare companies from 20 stocks listed in US. The top 5 stocks based on market cap size from 4 subsectors each - Pharma, Healthcare Equipment, Biotechnology and Life Sciences Tools and services.

Image 1:Constituents of the Fund
(Source: Edelweiss MSCI India Domestic & World Healthcare 45 Index Fund)

The fund house points out in brief that investing in index funds makes sense now for the following reasons:

  • Highly cost-efficient due to low total expense ratio.
  • Diversified because it consists of top companies from across sectors in term of free-float market capitalisation.
  • Free from fund manager's biased error or inefficiency in terms of asset allocation
  • Index funds seek to match the risk and return of the market, so no active risk of stock selection.
  • Highly transparent as indices are pre-defined, investors know the sector, companies and proportion in which their money will be invested.

However, do note that this index fund has exposure to offshore market and is a healthcare pharma theme specific fund, it will be an extremely high-risk investment proposition.

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Table 1: Details of Edelweiss MSCI India Domestic & World Healthcare 45 Index Fund
TypeAn Open-ended Equity Scheme replicating MSCI India Domestic & World Healthcare 45 IndexCategoryIndex funds- overseas
Investment ObjectiveThe Scheme will invest in stocks comprising of the MSCI India Domestic & World Healthcare 45 Index with the objective to provide investment returns that, before expenses, closely corresponds to the returns equivalent to the index, subject to tracking errors.
However, there is no assurance that the investment objective of the Scheme will be realized and the Scheme does not assure or guarantee any returns.
Min. InvestmentRs 5,000 and in multiples of Re 1 thereafterFace ValueRs 10 per unit
Plans
  • Regular
  • Direct*
*Default option
Options
  • Growth
  • Dividend (Reinvestment, Payout & Sweep)
Entry LoadNot ApplicableExit LoadNil
Fund ManagerMr Hardik Varma and Mr Mayur Dharmshi (for investments in foreign securities)Benchmark IndexMSCI India Domestic & World Healthcare 45 Index
Issue Opens:October 06, 2020Issue Closes:October 20, 2020
(Source: Scheme Information Document)

How will Edelweiss MSCI India Domestic & World Healthcare 45 Index Fund allocate its assets?

The asset allocation pattern of the scheme would be as follows:

Table 2: Edelweiss MSCI India Domestic & World Healthcare 45 Index Fund 's Asset Allocation
InstrumentsIndicative Allocation
(% of net assets)
Risk Profile
Stocks comprising the MSCI India Domestic & World Healthcare 45 Index95% - 100%High
Debt and Money Market Instruments / units of Liquid Mutual Funds0 % - 5%Low
(Source: Scheme Information Document)

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What is the Investment Strategy?

The Scheme being a Thematic Index Scheme, the Scheme will follow passive investment strategy and will invest not less than 95% of its corpus in stocks comprising the underlying index - MSCI India Domestic & World Healthcare 45 Index with the objective to provide investment returns that, before expenses, closely corresponds to the returns equivalent to the index, subject to tracking errors.

The Index will comprise of 70% weights to Indian healthcare stocks and 30% weights to global healthcare companies listed in the USA.

The Scheme may also invest a part of its corpus in money market instruments and / or units of liquid schemes to meet liquidity requirements from time to time.

However, there is no assurance that the investment objective of the Scheme will be realized and the Scheme does not assure or guarantee any returns.

A brief of the Index

MSCI India Domestic & World Healthcare 45 Index is designed to reflect the behaviour and performance of the Indian and Global Healthcare sector which includes top 25 stocks listed in India and top 20 stocks listed in the USA.

Rationale for adoption of benchmark:

MSCI India Domestic & World Healthcare 45 Index tracks the performance of healthcare sector in India and world through companies listed in the USA. This index fits the investment objective of the scheme to provide investors with the exposure to select healthcare stocks in India and USA.

Pursuant to SEBI circular dated January 10, 2019, the index shall comply with the following:

  1. The index shall have a minimum of 10 stocks as its constituents.
  2. No single stock shall have more than 35% weight in the index, as the index is thematic index and the Scheme is Thematic Index Scheme.
  3. The weightage of the top three constituents of the index, cumulatively shall not be more than 65% of the Index.
  4. The individual constituent of the index shall have a trading frequency greater than or equal to 80% and an average impact cost of 1% or less over previous six months.

Who will manage Edelweiss MSCI India Domestic & World Healthcare 45 Index Fund?

The Edelweiss MSCI India Domestic & World Healthcare 45 Index Fund is co-managed by Mr Hardik Varma and Mr Mayur Dharmshi (for investments in foreign securities).

Mr Hardik Varma has done his MBA from NMIMS university at Mumbai and is a Certified Financial Analyst. Mr Hardik started his career with Edelweiss Asset Management Limited in the year 2016 and has over 5 years of experience in the financial markets. He had joined in as an Equity Research Analyst and is currently the Fund Manager.

Some of the schemes that Mr Hardik manages at the fund house include Edelweiss Large Cap Fund, Edelweiss Equity Savings Fund (Arbitrage Portion), Edelweiss Aggressive Hybrid Fund (Equity Portion), Edelweiss ETF - Nifty 50, Edelweiss ETF - Nifty Bank, Edelweiss ETF - Nifty 100 Quality 30, Edelweiss Greater China Equity Off-Shore Fund, Edelweiss Emerging Markets Opportunities Equity Offshore Fund, Edelweiss ASEAN Equity Off-Shore Fund, Edelweiss Europe Dynamic Equity Off-Shore Fund, Edelweiss US Value Equity Off-shore Fund and Edelweiss US Technology Equity Fund of Fund.

Mr Mayur Dharmshi has done his Bachelor in Commerce from Mumbai University. He has more than 23 years of work experience. Previously, he was associated with JPMorgan Asset Management India Private Limited since July 1, 1996 as an Equity Trader. As mentioned earlier he will be handling the foreign securities of the investment.

Outlook for the Edelweiss MSCI India Domestic & World Healthcare 45 Index Fund

In order to achieve the stated objective of the scheme the fund managers will passively track the index to invest using the following methodology to construct the portfolio.

Image 2: Methodology
(Source: Fund's leaflet)

Considering the current scenario due to the combination of innovation & demand for better healthcare, the healthcare sector in India is poised to grow. The Indian pharmaceutical industry is the third largest in the world in terms of volume i.e. 10% of global industry and over 60,000 generic brands as per the presentation. In the last couple of years, the Indian pharma companies have been expanding their exports and getting approvals for new drugs with increased R & D spending.

Besides due to the pandemic, domestic pharma consumption is also on the verge of long-term growth, given rising healthcare spending by the Government. But since the stock picking is difficult the fortune of the Edelweiss MSCI India Domestic & World Healthcare 45 Index Fund will be as per the performance of the underlying index.

Although investing in an Index fund has its merits, Edelweiss MSCI India Domestic & World Healthcare 45 Index Fund has extreme risk, since it is a defensive theme-based index fund, with exposure to US markets and the fund manager will not conduct any analysis on the stocks and will only try to mirror the index.

Therefore, whether to sign up for this fund or avoid will depend on your preference, suitability, and risk appetite as an investor.

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Author: Aditi Murkute

This article first appeared on PersonalFN here.

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PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

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