Housing meets a basic human need. Demographics, urbanisation, affordability, and government housing initiatives have fostered a favourable environment for housing investments. As such, some mutual fund companies have introduced specialised funds to enable investors to tap into the housing theme.

Noteworthy options include HDFC Housing Opportunities, ICICI Prudential Housing Opportunities, Tata Housing Opportunities, and the recently launched Kotak S&P BSE Housing Index Fund (NFO closes August 21). Let’s delve into the specifics of these offerings.

HDFC Housing Opportunities

Initially launched as a closed-end scheme in 2017, HDFC Housing Opportunities Fund Series-I was later transformed into an open-ended fund named HDFC Housing Opportunities Fund in January 2021. While the closed-end version underperformed, the open-ended variant has posted an impressive 27.7 per cent CAGR over three years, closely aligning with the Nifty Housing Total Return Index’s 27.9 per cent CAGR.

The fund predominantly allocates to financials (31.71 per cent), construction (22.25 per cent), materials (19.82 per cent), energy (7.48 per cent), and metals & mining (4.99 per cent). Major holdings include HDFC Bank (11.55 per cent), ICICI Bank (8.2 per cent), L&T (8.16 per cent), NTPC (7.27 per cent), Ambuja Cements (6.91 per cent), SBI (5.3 per cent), Prestige Estates (5.11 per cent), and Ashoka Buildcon (4.51 per cent). Over the past year, the fund outperformed the benchmark by delivering returns of 21 per cent compared to the benchmark’s less than 7 per cent gain. The fund’s strategy revolves around equities tied to housing and related activities, poised to benefit from India’s housing demand growth. The fund’s direct plan total expense ratio is 1.27 per cent.

ICICI Pru Housing Opportunities

Introduced in April 2022, ICICI Pru Housing Opportunities has yielded attractive returns in a short timeframe. In the past year, the fund’s NAV surged by nearly 17 per cent, outpacing the Nifty Housing TRI’s gain of 6.81 per cent. The fund focuses on businesses involved in housing-related activities, such as real estate developers, housing finance providers, cement and cement products, consumer electronics, paints, steel, home appliances, and sanitary ware. Key sectors include financials (25.87 per cent), materials (17.07 per cent), construction (16.95 per cent), energy (10.99 per cent), and consumer discretionary (7.26 per cent). Notably, it diverges from HDFC’s scheme with a stronger emphasis on consumer discretionary and reduced exposure to small-caps (9.75 per cent versus HDFC’s 16.3 per cent). The fund’s direct plan total expense ratio is 0.53 per cent

Tata Housing Opportunities

Launched in August 2022, Tata Housing Opportunities stands as the third actively-managed scheme in this thematic category. The fund aims to offer a portfolio of businesses positioned to benefit from the real estate cycle, with a focus on higher-quality entities compared to pure-play real estate firms. The fund strategically limits exposure to defensive sectors. Like its counterparts, it is benchmarked against the Nifty Housing TRI. The fund adopts a large & midcap approach to its portfolio, with narrow allocation to small-caps (less than 6 per cent). This approach results in higher concentration and conviction in select sectors: financials (30.89 per cent), materials (26.86 per cent), construction (15.61 per cent), capital goods (10.39 per cent), and consumer discretionary (7.87 per cent). Top holdings encompass HDFC Bank, ICICI Bank, L&T, Ambuja Cements, as well as Supreme Industries, Can Fin Homes, Voltas, Polycab, Kajaria Ceramics, and KEI. The fund’s direct plan total expense ratio is 0.70 per cent.

Kotak S&P BSE Housing Index Fund

The newly-launched Kotak S&P BSE Housing Index Fund marks the first passive offering in this domain. It will track the S&P BSE Housing Index, unlike actively-managed peers tied to the Nifty Housing index. The fund’s strategy centers on minimizing tracking error through portfolio rebalancing (semi-annual). Since its a new product, there is no data on tracking error or tracking difference. Constituents of the S&P BSE Housing Index are drawn from the S&P BSE 250 Large Mid Cap Index and are weighted by float-adjusted market capitalization, with allocation capped at 5 per cent per constituent. This approach results in less concentrated stock exposures compared to active alternatives. Top holdings in the index encompass Asian Paints, UltraTech Cement, Grasim Industries, DLF, Supreme Industries, Astral, Havells India, Shree Cement, Ambuja Cements, and Godrej Properties.

Our take

In comparison to actively-managed counterparts, index-based funds entail lower risk due to their passive nature. They bypass the additional volatility associated with fund manager decisions. Nevertheless, actively-managed funds hold an advantage in swiftly adapting to shifts in market fundamentals.

Thematic investing, particularly in the housing theme, holds promise as a multi-year narrative. While certain facets of the theme may follow cyclical patterns due to real estate dynamics, a well-managed housing thematic fund can find a place within a long-term portfolio. For optimal fund selection, lean towards a scheme with flexi-cap orientation that can offer advantages over a strictly large and midcap approach.

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