Technology sector has seen a roller-coaster ride, be it domestic tech stocks or overseas tech giants. NASDAQ 100, one of the world’s preeminent large-cap non-financial indices, closed 2021 year with over 25 per cent gain. This was after clocking double-digit rise each in 2019 and 2020. But 2022 has been a rude awakening so far. The index has lost 34 per cent (till October 12). The correction in NASDAQ 100 is due to steep declines in top weights such Apple (down 24 per cent), Microsoft, Amazon, Alphabet (all down 33 per cent), Tesla (down 45 per cent), Meta Platforms, Nvidia (down 62 per cent each).

Readers will note that in our bl.portfolio edition dated January 2, 2022, we had recommendedinvestors to avoid NASDAQ-focussed funds, as a big correction was imminent, given the micro and macro fundamentals. We had further recommended that investors must wait for a minimum 25 per cent correction in 2022 before considering these funds. This has played out well. NASDAQ-focussed mutual funds, many of which were launched in the past two years, year to date have shed between 26 and 28 per cent. Rupee depreciation has helped cushion some losses. Interestingly, Axis MF has launched Axis NASDAQ 100 Fund of Fund (NFO closes October 21) which will invest in units of ETFs focused on the Nasdaq 100 TRI. Here is a re-look at the NASDAQ funds situation.   

NASDAQ fund landscape

The fundamental reasons behind investing in NASDAQ-focussed funds remain intact. One, the underlying stocks of the index offer unique business models and are owner of advanced technologies. Two, many of these companies are commercialising emerging themes for this decade, and offer solid monetisation opportunities. Three, NASDAQ 100 despite having the perception of a tech basket is reasonably diversified with actually 16 per cent allocation each in consumer discretionary and communication, over 6 per cent each in consumer staples and healthcare, and some exposure to industrial utilities too. Four, from a geographical perspective, NASDAQ 100 companies derive bulk of their revenue from different countries, which cuts concentration risk.

Excluding the NFO, there are eight options to bet on NASDAQ. There are five FoFs (Navi, ABSL, Kotak, Invesco and Motilal Oswal), two ETFs (Motilal Oswal) and one index fund (ICICI Pru). Only Kotak and Motilal products have at least one-year track record. Motilal Oswal NASDAQ 100 FoF (10 bps), Navi NASDAQ 100 FoF (13 bps) and ABSL NASDAQ 100 FoF (13 bps) are the cheapest, while Motilal Oswal NASDAQ 100 ETF (58 bps), ICICI Pru NASDAQ 100 Index Fund (50 bps) and Motilal Oswal NASDAQ Q50 ETF (42 bps) are the costliest in terms of absolute direct plan expense ratio.  

Should you get in now?

Ten months ago, the case for investing into the passive funds tracking NASDAQ 100 wasn’t good. Valuation was a big concern. But after the correction, the index now trades at a trailing price to earnings ratio of 22 times, a slight discount to its 10-year average valuation. This is a good entry point for investors with a long-term horizon.

The pain in US markets isn’t over. After a bigger-than-expected rise in consumer prices last month, another big rate hike from the Federal Reserve when it meets in November could dampen sentiments further. Traders of US interest-rate futures are pencilling in a near 91 per cent odds of a fourth straight 75-basis-point hike by the Fed. With the 10-year benchmark Treasury yield touching fresh 2008 highs at 4 per cent, mega-cap US tech stocks have not been spared. While third-quarter earnings reports will help determine the impact of higher prices on company results, consensus earnings view is already pricing a slower profit growth. While a case for further 10-15 per cent correction remains and the NASDAQ 100 may slip below 10,000 levels, finding the exact bottom will be an impossible task. For low-risk investors with a 3-5 year horizon we recommend starting a SIP now. For investors with higher risk-appetite and similar time horizon, we recommend splitting lump-sum component into six parts and invest each on a monthly basis over the next six months. You can either choose funds based on at least one-year track record or on the basis of expense ratio.

(With inputs from Hari Viswanath)

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