Axis Healthcare ETF NFO: A passive play on a long-term wealth creating sector
Axis Mutual Fund has announced the launch of their new fund– ‘Axis Healthcare ETF’. The new fund offer (NFO), which will open on Friday, April 30, will allow access to investors in the Healthcare sector in a neatly packed bite-sized exchange-traded fund.
Unique play
So far, the only way offered to play the pharma/healthcare sector was actively managed funds. The biggest ones among them are Nippon India Pharma, ICICI Pru Pharma Healthcare & Diagnostics, SBI Healthcare Opportunities, Mirae Asset Healthcare and DSP Healthcare. This category of funds have given an average CAGR of 12 per cent in last 5 years and an average CAGR of 16 per cent in 10 years. But be warned, these are historical returns. Any sectoral play requires entry at the right price, waiting and then exit at the right price. So, such funds must only be a part of satellite allocation in your portfolio.
Now, Axis Healthcare ETF offers a passive way to play the healthcare sector wealth creation opportunity. The open-ended exchange traded fund will be tracking NIFTY Healthcare Index. This means there will be no fund manager led stock selection.
The Nifty Healthcare Index, started in November-2020, comprises a maximum of 20 stocks that are listed on the National Stock Exchange. The top 10 biggest stock weights are Sun Pharma (15.31%), Dr. Reddy’s Laboratories (13%), Divi’s Laboratories (10.95%), Cipla (9.82%), Apollo Hospitals Enterprise (6.93%), Aurobindo Pharma (5.88%), Lupin (5.82%), Biocon (4.31%), Laurus Labs (3.27%) and Ipca Laboratories (3.09%). Expect the index to fall less than the Nifty because of a correlation of 0.67 and a beta of 0.57.
There is also a passive product called Edelweiss MSCI India Domestic & World Healthcare 45 Index Fund, which is a combination of domestic-international healthcare plays. This is a relatively new fund launched in October 2020.
About the ETF
Axis Healthcare ETF will be managed by Jinesh Gopani, Head – Equity, Axis AMC.
The new fund offer is ideally suitable for investors who are seeking, long-term wealth creation solution through targeted sectoral exposure to the healthcare sector. With an ETF route, the fund will aim to track returns by investing in a basket of NIFTY Healthcare Index stocks with an aim to achieve returns of the stated index.
The index on the face of it seems domestically focussed. India’s Healthcare industry has achieved global recognition for its capabilities and strong knowledge base and has strong continued growth potential.
Passive investing in India has gained quite the momentum, either through index funds or exchange-traded funds. It is a low friction investment strategy tracking a specific index as closely as possible. The passive approach of replicating benchmark also leads to a stable portfolio with limited turnover.
Current sector universe may add limited scope to active management and hence a sector ETF can add value at low cost, claims the fund-house.
Since this is a new ETF, keep a watch on trading frequency on the exchange, its impact cost, tracking error and any deviation between ETF NAV and ETF market price.
About ETFs in general
Apart from being cost effective, ETFs let investors invest at real-time prices as opposed to end of day price by sector funds. It protects their investments from the inflows and outflows of short-term investors.
Furthermore, ETFs are best suited to earn asset-class linked performance and is touted to be one of the most flexible tools for gaining instant exposure to the markets, thereby equitizing cash.
Fund-house speak
On the launch of the NFO, Chandresh Kumar Nigam, MD & CEO, Axis AMC, said, “Our ETF strategy relies on offering highly innovative yet relatable products to our target investors and we have already seen a number of launches in this space in the last year. The launch of Axis Healthcare ETF continues to take forward our endeavour to build up our passive product suite over time and towards our target of being the preferred manager to investors across the entire spectrum of active and passive products.â€
Minimum investment
Minimum Investment in Axis Healthcare ETF (NFO) is Rs. 5,000 and in multiples of Rs.1/- thereafter.
The ETF benchmark is Nifty Healthcare TRI Index
NFO dates: April 30, 2021 to May 10, 2021
