In this week’s edition
- 1 TLDR post – where we quickly simplify the “too long” arduous stories that you “didn’t read”
- 1 latest article & 1 podcast from the Capitalmind research desk
- 5 conversations from the slack community
- 5 interesting reads from across the internet
- A special discount on the Premium plan at the end
NFO Quick Take: ICICI Prudential Strategic Metal and Energy Equity Fund of Fund
ICICI Prudential is introducing a fund of fund, the ICICI Prudential Strategic Metal and Energy Equity Fund of Fund, NFO opens from 17th Jan to 31st Jan 2022. Here’s our quick take.
Investment Philosophy:
ICICI Prudential Strategic Metal and Energy Equity Fund of Fund (the Scheme) is an open-ended fund of fund scheme that invests in the units/shares of First Trust Strategic Metal and Energy Equity UCITS Fund.
So what’s the investment philosophy of the First Trust Strategic Metal and Energy Equity UCITS Fund?
This is an open-end fund incorporated in Ireland. The Fund’s objective is to seek to deliver long-term total return from income and capital gains with lower volatility than an equity portfolio. The Fund invests in equity securities related to gold and oil which are listed or traded on Regulated Markets Worldwide.
How ICICI Prudential is pitching this fund:
All investors tend to be susceptible to home-country bias. Therefore Indian investors tend to be invested in the 3% slice of global GDP that represents India. We should look to diversify globally.
However, for most investors, international diversification means being invested in US equities, and that too mostly in Technology stocks. Technology stocks valuations are at or exceeding dot-com bubble levels, while Gold and Oil stocks are available at attractive valuations. (their words not ours)
Therefore, their core pitch is global diversification into non-technology stocks.
Investment Process and Top Holdings
The investment process of the First Trust Strategic Metal and Energy Equity Fund seems as convoluted as the name.
In short, start with Gold and Energy stocks in equal proportion and increase weight to the sector showing lower correlation to “currency factor” and higher returns. At the time of the NFO, the fund has 123 holdings, with 31% allocation to gold stocks and 69% to Energy stocks. The largest holdings are all Oil & Gas companies:
- Conoco Phillips
- Chevron
- Exxon Mobil
- EOG Resources
- Canadian Natural Resources
Our take
Performance-wise, the underlying fund has only been around since Feb 2021. In that time it has outperformed the Indian market indices, the Nasdaq 100, and its benchmark, the S&P Global Natural Resources Index.
Source: Refinitiv
11 months of performance does not give us much to go by. So we won’t draw conclusions based on performance.
The fund’s marketing deck offers itself as the solution to those who are only allocated to the US. But 90% of this new fund’s holdings are in North American companies, with 3.7% in Australian companies and 2.9% in South African companies. So, not particularly global.
The idea of diversifying beyond India is sound. But picking a sectoral fund to diversify does not make sense unless you have specific know-how about the right time to enter global Gold and Oil companies to be able to make that call.
The primary vehicle for diversifying internationally should be passive broad-market index fund of funds or ETFs over specialized sectoral funds.
We would put this fund into the “too hard” pile and avoid.
Capitalmind Research 💡
- [Premium] One of our model portfolios, the Fixed Income Portfolio, has a rebalance update on the backdrop of changing interest rate scene. Read – CM Fixed Income Portfolio: Reducing Gilt Mutual Funds to add a Floater
- In this podcast, Deepak and Shray unravel the dynamics of an IPO application for HNIs. From the rules of allocation, the big business of IPO funding, how HNIs can borrow 100X their money, systemic risks, how grey market premium (GMP) works, the role of regulators, and the road ahead. Listen in – The secret to HNI IPO funding that the RBI just killed
[Premium] School of Slack 😎
Putting together the best conversations from our slack community
- Why is TCS buying back shares at 4500 when market price is 3800? [link]
- Uncle Theta trade update [Wednesday trade] [ Thursday trade]
- A thread on CM Fixed Income PF rebalance. [link]
- Why are SBI and Franklin finding it so difficult to sell Clix bonds? [link]
- What stops Indian exchanges from offering fractional investing as prevalent in US? [link]
Links we Like✨
In this section, we bring you curated articles from across the internet that we found interesting.
- The revolutionary dating app made a lot of people rich. Its co-founder Sean Rad didn’t feel rich enough. Read – A Tinder Revenge Story
- Money is a required pursuit for life, but a pointless pursuit upon death. Read the last line again. If it intrigues you enough, you’ll enjoy reading the full article. Read – The Nothingness of Money
- Being curious is one of life’s most underappreciated qualities. It’s an admission that you don’t have it all figured out. It means you’re willing to listen and learn. Most importantly, it often differentiates the good from the great. Read – Be Curious
- There are numerous parallels between casinos and markets. And between players of Casinos and investors of markets. Here’s one talking about – Why Increasing Bet Size Is An Investing Superpower
- There’s one question that’s bothering the pundits and investors alike – Why Do Investors Keep Buying the Most Expensive Assets?
That’s all, folks. Have a great weekend!
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