scorecardresearchICICI Direct says ETFs best placed from asset allocation perspective — a look at 1-year returns

ICICI Direct says ETFs best placed from asset allocation perspective — a look at 1-year returns

Updated: 02 Jan 2023, 03:58 PM IST
TL;DR.
In a recent report, domestic brokerage house ICICI Direct said that ETFs are best placed from an asset allocation perspective as they do not carry any stock selection risk.
The Indian equity ETF market has grown with many categories of ETFs now available in large-cap, mid-cap, and thematic segment, noted the brokerage.

The Indian equity ETF market has grown with many categories of ETFs now available in large-cap, mid-cap, and thematic segment, noted the brokerage.

Exchange-traded funds (ETFs) have taken the world by storm with assets under management (AUM) in such funds surpassing those in traditional mutual funds in many countries.

In a recent report, domestic brokerage house ICICI Direct said that ETFs are best placed from an asset allocation perspective as they do not carry any stock selection risk. The Indian equity ETF market has grown with many categories of ETFs now available in large-cap, mid-cap, and thematic segment, noted the brokerage.

Exchange-traded funds, or ETFs, are exchanged on a stock exchange and follow a commodity, an index or a portfolio of assets, such as an index fund. They have risen in popularity among investors searching for alternatives to mutual funds since their debut in 1993.

These products consist of a basket of assets meant to replicate an index and offer minimal management costs and more intraday price transparency.

"ETFs have a number of attractive features. Usually, they have much lower fees and can be bought and sold during the day as opposed to mutual funds that usually execute at the close. Earlier, there was primarily Nifty or Sensex ETF but now there are many ETFs in the large-cap space like Nifty Next 50 ETF. Similarly, in midcaps, Nifty Midcap 100 ETF and Nifty Midcap 150 ETF… Many thematic ETFs are also available like banking ETFs and Nasdaq 100 ETFs," highlighted the brokerage.

ICICI Direct also pointed out that the market for ETFs has grown tremendously since 1993. Today, more than 2,000 ETFs are listed in the US, it added.

In India, the ETF landscape has gained traction since 2015 and has not only become much bigger but also more diverse, informed the brokerage. AUM for ETFs has grown from 5,400 crore in December 2014 to above 5 lakh crore currently. 

Returns of various ETFs

As per the ICICI Direct report, Nifty50 ETF and Sensex ETF have given nearly 10 percent returns in the last 1 year. Meanwhile, in the past 6 months, the return for both ETFs is around 21 percent, however, they have underperformed in the last 3 months, giving only around 5 percent returns to their investors.

Among other large-cap-oriented ETFs, Nifty50 Equal Weights ETF has advanced 13 percent in the last 1 year and 23 percent in the last 6 months while BSE100 ETF has added 10 percent in the last 1 year and 21 percent in the previous 6 months.

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Source: ICICI Direct report
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Source: ICICI Direct report

Among sector/thematic ETFs, PSU Bank ETF has rallied over 70 percent in the past 1 year and over 83 percent in 6 months. Nifty Bank and Nifty Private Bank ETFs have also risen 22 percent each in 1 year and over 30 percent in 6 months. Nifty Fin Services ETF has  added 12 percent in 2022 and 28 percent in 6 months.

Consumption theme has also been popular in India, which has led to a 15 percent rise in Nifty India Consumption ETF in a year. In the last 6 months, this ETF has advanced 22 percent but it has fallen 1.5 percent in the last 3 months.

However, IT ETF has shed 20 percent in 1 year, but is up 8 percent and 7 percent, respectively, in the last 6 months and 3 months.

Healthcare ETF is also down 3 percent in last one year but is up 10 percent in 6 months.

Meanwhile, Thematic ETFs like Hang Seng Tech ETF, Nasdaq 100 ETF, and NYSE FANG+ ETF have also shed between 20 percent and 31 percent in the last 1 year. S&P500 Top 50 ETF and Hang Seng ETF have also fallen 16 percent and 7 percent, respectively, in 2022.

Among India thematic ETFs, CPSE ETF, as well as Bharat 22 ETF, have gained 31 percent each in the last 1 year. They have also gained 19 percent and 29 percent, respectively, in the last 6 months.

Gold ETF has also gained 11 percent in the last 1 year but is up only 6 percent in the past 6 months.

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First Published: 02 Jan 2023, 03:58 PM IST