Kotak Mutual Fund has launched Kotak Global Innovation Fund of Fund (FoF). The open-ended scheme, which is open for subscription till July 22, will invest in units of Wellington Global Innovation Fund (WGIF). US-based Wellington Management, the asset manager for the underlying fund, has a globally diversified asset management business with over $1 trillion in client AUM.
WGIF, the feeder fund domiciled in Luxembourg, was established in February 2017. Its AUM was around $400 million as of May. The fund seeks to tap and profit from investing in companies globally that are levered to growth through innovation or are having exposure to secular trends. Companies that fit the criteria here include not just companies engaged in developing new technologies, but also those involved in novel processes or in implementing business model changes that would allow the fund to capture a disproportionate share of its industry. Thus, the fund is sector agnostic and invests across market-cap categories. It targets 40-70 stocks in its portfolio.
The fund is benchmarked against the MSCI All Country World Index TRI (ACWI). Since inception in February 2017, it has provided CAGR returns (in INR terms) 27.76 per cent versus ACWI’s 15.86 per cent. It has beaten theACWI in each of the last three calendar years. While the performance so far is encouraging, the lack of a longer term-track record (5-7 years) must be noted.
Given that the US is the hotbed of innovation, the feeder fund is heavily exposed toNorth America with over 73.5 per cent of portfolio invested there as of May.. Around 14 per cent was invested in emerging markets. While it is overweight on North American exposure vis-a-vis the benchmark, it is underweight on European stocks.
In terms of sectoral exposure, information technology (26.4 per cent), consumer discretionary (20.8 per cent), communications services (20.8 per cent) and healthcare (18.6 per cent) were the top four sectors its portfolio wherein also it is overweight versus ACWI. Financials and consumer staples are a few of the sectors it is underweight on. Some of the top holdings in the fund are Amazon, Alphabet, Facebook, Visa and AstraZeneca.
Kotak Global Innovation Fund of Fund’s TER (total expense ratio) is 2.25 per cent. Exit load is 1 per cent for redemptions/switchouts (including SIP/STP) within one year from the date of allotment of units, irrespective of the amount of investment.
Factors to consider
Innovation and growth themes have played out very well in recent years, and more so since the onset of Covid.
Earnings growth driven by innovation and good execution, and significant expansion in PE multiples driven by easy monetary policies have both contributed to the outperformance of many of the growth and innovation-themed stocks.
Tightening of financial conditions, whenever they happen in future, will have an outsized negative impact on growth stocks. Given this, interested investors need to carefully assess style (SIP or lump sum)/timing of investment and their investment horizon.
This apart, there have been quite a few NFO launches in recent months to tap global innovation and growth themes.Kotak Nasdaq 100 FoF, Axis Global Innovation FoF, Mirae Asset NYSE Fang+ ETF and FoF are a few. Common names across these themes are the US big tech companies such as Amazon, Facebook and Alphabet. Investors need to ensure they are not over-exposed to these names and to the broader theme as such.
Lastly, long-term investors also need to factor in long-term currency movements. Part of the outperformance of many of these international funds is driven by INR depreciation versus US dollar. While the trend may continue in the future also, it cannot be taken for granted. While some diversification is good and robust returns are possible even when the currency trend is not favourable, this is an additional risk factor to monitor.