Investors worried about the underperformance of their actively managed large-cap funds could consider shifting partly to the new fund offer of Mirae Asset ESG (Environmental, Social, Governance) Sector Leaders Exchange Traded Fund (ETF), said financial planners.
The new fund offer is currently open and closes on November 10. The fund will be passively run and will track the performance of the Nifty 100 ESG Sector Leaders Index, that essentially constitutes large-cap companies.
ESG investing applies non-financial metrics to evaluate environmental, social and governance criteria while picking stocks.
This is the first ETF and the third NFO in the ESG space after Axis Mutual and ICICI Pru MF launched actively managed ESG funds in February and September this year. The ETF will have an expense ratio of 33 basis points, which is much lower than the 1.25-2.5% charged by actively managed large-cap funds.
“Investors could shift a part of their underperforming active large-cap portfolio to such a theme,” said Vijay Kuppa, founder, Orowealth. Actively managed large-cap funds have struggled to beat benchmark indices. As per data from SPIVA, for June 30, 2020, 80% of actively managed large-cap funds underperformed the S&P BSE 100 for a five-year period, while for a three-year period the figure was even higher at 83%.
The Nifty 100 ESG Sector Leader Index has outperformed both the Nifty 100 and Nifty 50 over thee three- and five-year periods. The index has returned 8.5% and 9.5% over three and five years, respectively. The Nifty 100 index returned 5.2% and 8.5% and Nifty 50 gained 6% and 8.5%, respectively.
“A portfolio of ESG companies has lower drawdowns, commands higher valuation premium and lower cost of capital,” says Rupesh Bhansali, head — distribution, GEPL Capital. He recommends subscribing to the ETF as a substitute for an actively managed large-cap fund.