Mutual Funds

Should you invest in Axis Global Innovation FoF?

Hari Viswanath | Updated on May 09, 2021

Long-term trend favours disruptive themes but investors must consider some risks too

NFOs have been in flavour over the last year. Within that, fund of funds (FoFs) seeking to tap the growing appetite of Indian investors to invest in global markets — especially the US, which offers opportunities to benefit from investing in new-age technology and disruptive companies — have also been gaining traction. The latest to join the fray is the Axis Global Innovation FoF, an open-ended fund of fund scheme that will invest in Schroder International Selection Fund Global Disruption (SISF-GD). The issue opens on May 10 and closes on May 21.

Underlying fund

Schroder is a global investment manager based out of the UK with AUM of £574 billion. Schroder has a 25 per cent stake in Axis Asset Management (which includes its Mutual Funds business). SISF-GD was launched in 2018 and currently has an AUM of $343 million. Its objective is to provide capital growth by investing in innovative companies that are redefining their industries or are successfully adapting to change. It is benchmarked to the MSCI All Country World Index (ACWI).

The fund focuses on spreading its investments across three thematic drivers within the larger innovation/disruptive space — disruptors, enablers and adaptors. For example, it labels US-based fintech firm Square as a disruptor, Visa as an enabler and JP Morgan as an adaptor. Currently it has around 50 per cent of portfolio invested in disruptors, around 30 per cent in enablers and 20 per cent in adaptors. Besides capitalising on the opportunities from these themes, it also seeks to avoid losses by identifying and staying away from ‘deniers’ — companies that do not see changes happening and fall out (such as Nokia post launch of iPhone in 2007 and subsequently Android OS).

Its investments are diversified across geographies with maximum exposure to North America, with around 60 per cent exposure (close to the ACWI exposure). In terms of sectors, it has around 35 per cent exposure to Information Technology where it has a significant delta versus ACWI exposure of around 20 per cent. Other sectors where it has over 10 per cent exposure are communication services, consumer discretionary and industrials. Its top holdings are Alphabet (Google), Microsoft and Amazon, which together account for around approx 12.5 per cent of portfolio. It is significantly underweighted in financials with around 5 per cent exposure versus close to 15 per cent for ACWI. It has around 50 per cent exposure to companies with market cap of over $100 billion and 7.5 per cent exposure to companies with market cap below $10 billion.

Performance

Since the fund was launched only in 2018, there is not a long track record to assess how it has fared over 5-7 year periods. Over the last one year (March 21), it has returned 66 per cent versus ACWI returns of 50 per cent (both INR returns). In comparison, the US focussed Motilal Oswal Nasdaq 100 ETF, which tracks the Nasdaq 100 ETF consisting of the most disruptive and innovative companies in the world, returned around 65 per cent. Since inception, SISF-GD has returned 33 per cent versus ACWI’s 19 per cent.

Other details

According to Axis MF, the underlying fund will charge an expense ratio of 0.75 per cent. Besides this, the expense ratio charged by the FoF will be 1.5 per cent under the regular plan and 0.4 per cent under the direct plan. Initial minimum investment required is ₹5,000.

Factors investors must consider

The last decade has been an exceptional one for companies that have been global disruptors, especially in the technology space, with many of the themes expected to play out during the dotcom boom of 2000 actually unfolding in the decade starting 2010.

At the same time, the outlook for innovation and disruption has never been brighter than now, given the speed with which digitisation is engulfing the world and the rapid strides in technology that is outpacing even the earlier decade, and themes like artificial intelligence, big data and analytics, internet of things, autonomous cars, 5G etc, set to gain significant prominence in the current decade.

While the long term trend is strongly in favour of such themes, how the stocks will react when treasury yields increase on inflation concerns in developed markets (yields increasing usually results in investors shifting preference to value stocks over growth stocks for a while), broader market valuations being at historically high levels are some of the factors that investors must consider. Investors need to carefully consider their style of investing (SIP vs lumpsum)/timing of investment, and investment horizon at the current juncture for such themes.

Another factor to be kept in mind is that many of the international FoFs launched by Indian mutual funds are heavily exposed to the FAAMG — Facebook, Amazon, Apple, Microsoft and Google (Alphabet), and hence investors must ensure they are not over-exposed to these stocks.

Published on May 09, 2021

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