BNP Paribas Aqua Fund of Fund NFO: Should you invest?
The underlying fund has large allocation to industrials, followed by utilities, materials, healthcare, IT and consumer discretionary
BNP Paribas MF has launched BNP Paribas Funds Aqua Fund of Fund, an open-ended Fund of Fund scheme that invests in units of BNP Paribas Funds Aqua (Lux). The underlying fund aims to invest in attractive global companies that are part of the growing global water value chain. The NFO opened on April 16 and will close on April 30. Should you invest? Here are more details.
Water as a theme
Though 70 per cent of Earth is covered in water, just 2.5 per cent of the total 336 million cubic miles of water on earth is considered ‘fresh’ and only 0.025 per cent is accessible surface water. By 2050, at least 1 in 4 people will likely live in a country affected by chronic or recurring fresh-water shortages. Clearly, there is an urgent need for upgrading global water infrastructure.
Owing to key factors like rising global population and urbanisation as well as an ageing water infrastructure, a whopping gap between the global demand and supply of water is eminent. Water is fast becoming one of our most precious resources. A host of companies across the globe, providing solutions in areas like water infrastructure, water treatment and utilities, are working towards easing this burden. That makes water related businesses attractive long term investment opportunities.
BNP Paribas Aqua Fund
The NFO is a Fund of Fund. This means money from Indian investors will be collected and invested in the underlying fund – BNP Paribas Funds Aqua. The underlying fund, which has an AUM of $3.2 billion, moves across end-markets from consumer to industrial and captures cyclical and defensive business models, early to late cycle. It has regional allocation from developed to emerging countries. The underlying fund is benchmarked to MSCI World (NR). At the moment, United States (47.53 per cent), United Kingdom (14.16 per cent), Switzerland ( 5.34 per cent), Japan (4.87 per cent) and France (4.5 per cent) are key portfolio exposures.
Water infrastructure companies include those involved in network equipment, buildings and industry equipment, infrastructure services and irrigation. Water treatment companies include those involved in filtration and advanced solutions, traditional treatment, efficiency and testing and monitoring.
Utilities include those involved in provision of clean water supply, growing areas include energy efficiency, infrastructure and investment and desalination.
The water investment universe offers diversification across geographic regions, end markets and sectors to allow the portfolio managers to build balanced portfolios of both defensive and cyclical stocks and to position per macroeconomic forecasts.
The underlying fund offers a high active share versus global equities, whilst still maintaining similar risk characteristics to a broader equity portfolio. The investable universe has a high exposure to fast growing, global mid cap equities. The top constituents are Pennon Group, Idex Corp, Fischer, Agilent Technologies, Pentair, Trimble, American Water Works, Rexnord Corp, Suez and United Utilities Group. In terms of sectoral exposure, Industrials have 46.32 per cent allocation, Utilities 22.52 per cent, Materials 11.04 per cent, Healthcare 6.85 per cent, Information Technology 5.08 per cent and Consumer Discretionary 3.94 per cent.
For investors, a water fund is another step towards ESG portfolios. Do note that the Indian investor in the FoF will bear the recurring expenses of the scheme, in addition to the expenses of the underlying fund. Total TER will be around 2.25 per cent. There will be no exit load after 12 months, while a load of 1 per cent for exits before 12 months.
Fund performance so far
BNP Paribas Funds Aqua [USD] in the last 12 months ended March 2020 has given 68.20 per cent return, outperforming MSC World. In the last 3 years, it has given 15.64 per cent CAGR, generating 2.83 per cent alpha. In the last 5 years, the fund has given 16.02 per cent, outperforming benchmark by 2.66 per cent.
The BNP offering is an interesting play now given the supportive global monetary policy and fiscal stimulus packages (around USD 8 trillion) have reduced corporate sector and systemic liquidity risks. As water is an essential societal commodity, additional stimulus should assist many water infrastructure-related industries. Also, over $11.7 trillion is to be invested up to 2030 in upgrading water infrastructure globally. In the short-term, the fund’s industrials exposure should benefit in 2021 as the economy further opens up.