This is another post from the Suggest a Topic page, and this time we’re going to take a look at the recently launched MOSt Shares NASDAQ 100 ETF from Motilal Oswal.
The NFO for this ETF has recently closed on the 23rd March 2011, but regular readers know that it doesn’t make any difference if you missed the NFO.
The MOSt NASDAQ 100 ETF plans to track the NASDAQ 100 Index (NDX) of course, and this isn’t a fund of funds, which means that it will look to invest in the underlying stocks directly, and you won’t have to incur double fees.
The few other international funds I’ve seen so far are fund of funds which means double fees for investors as they bear the fee of the fund, and then the underlying fund as well.
While the SID (Scheme Information Document) does state this ETF can invest in other NDX based ETFs, it appears to me that for the most part the intention is to directly invest in the underlying stocks, and that’s a good thing.
The expense ratio of MOSt NASDAQ 100 ETF is 1% of recurring expenses, and that’s among the lower ones charged in the Indian ETF space, which is a good thing as well.
Having looked at the basic things, let me now explore 3 factors that are not easily apparent when you’re looking at this ETF, but are something that you should be familiar with.
The NASDAQ 100 Index
The first thing to do is to get familiar with the index itself. In this case the NASDAQ 100 Index, which comprises of 100 of the largest companies listed on NASDAQ based on market capitalization. These are primarily technology companies, but there are other companies like Vodafone, Whole Foods, Wynn Resorts in the index as well. The complete list can be found at the bottom of this post which I’ve taken from the SID itself.
Apple is by far the biggest constituent of this index with about 20.65% weight, and QUALCOMM is the second largest constituent with 5.03% weight.
Here is a pie chart that shows the top constituents along with their respective weights and you can see that the top 12 stocks make 50% of the index.
So, if I were to invest in this index I’d have to have a good feeling about the US technology market in general and these stocks in particular – at least about Apple.
Exchange Rate Movements
Since this ETF will raise money in INR and then invest it in USD – that exposes it to exchange rate fluctuations, and this is something you need to keep in mind or it might surprise you later.
From the risk factors in the SID:
As the Scheme will invest in securities which are denominated in foreign currencies, fluctuations in the exchange rates of these foreign currencies may have an impact on the income and value of the Fund.
To understand this think of a situation where this ETF didn’t exist and you wanted to invest Rs. 90,000 in the NASDAQ 100 Index.
You’d give this money to your cousin in US and ask him to invest it on your behalf. The current exchange rate is about 45 rupees to a dollar, so this will amount to approximately $2,000 with which your cousin buys the ETF.
Let’s suppose the market stagnates for a year, and the NASDAQ 100 doesn’t move at all. Your patience runs up, and you ask your cousin to sell the holding and send you the money.
Your cousin sells the holding and gets the $2000 back, but the exchange rate has now moved to 1 USD = 40 INR, so that $2000 only translates to Rs. 80,000.
So even though the index didn’t move at all you made a loss due to exchange rate movement. The reverse is also true and if the exchange rate moves to 1 USD = 50 INR you will stand to gain.
This will be true for any international ETF and is more of a feature than a bug. Just be cognizant of this factor when investing in the MOSt NASDAQ ETF.
This ETF is treated as a scheme other than an equity oriented fund for taxation purpose, and that’s probably a drawback given that equity funds are treated more favorably for tax purposes, and your investment really is equity investment.
This is an interesting product, and the people I’ve spoken to who’re interested in this product were primarily looking to diversify their equity holdings a little bit by investing in the equity of a developed market. If that’s your goal with it then I suggest that you also enable foreign trading on your equity account and see what options you have there. I’m not very well familiar with that option, but it does exist. If you were inclined to take a position on US technology stocks then of course this is a fit for you.
As always – I won’t make any recommendations on whether you should buy it or not, but if you had any other questions or observations please leave a comment.
List of all components:
|S.No.||Name of the Security||%Weight|
|1||First Solar Inc||0.491|
|4||Dollar Tree Inc||0.306|
|8||Activision Blizzard Inc||0.578|
|10||Marvell Technology Group Ltd||0.565|
|11||DENTSPLY International Inc||0.229|
|12||BMC Software Inc||0.447|
|16||Costco Wholesale Corp||0.777|
|17||FLIR Systems Inc||0.235|
|22||Microchip Technology Inc||0.268|
|24||Express Scripts Inc||1.247|
|25||Cisco Systems Inc||1.99|
|27||Electronic Arts Inc||0.238|
|29||Linear Technology Corp||0.495|
|30||Wynn Resorts Ltd||0.707|
|33||Biogen Idec Inc||0.797|
|34||Warner Chilcott PLC||0.275|
|35||Ross Stores Inc||0.365|
|38||O’Reilly Automotive Inc||0.358|
|40||Intuitive Surgical Inc||0.568|
|42||F5 Networks Inc||0.374|
|45||CH Robinson Worldwide Inc||0.591|
|47||Citrix Systems Inc||0.674|
|49||Adobe Systems Inc||0.777|
|52||Gilead Sciences Inc||1.467|
|56||Henry Schein Inc||0.265|
|57||Automatic Data Processing Inc||0.797|
|58||Research In Motion Ltd||1.508|
|59||Expeditors International of Washington I||0.492|
|60||Applied Materials Inc||0.522|
|61||Vertex Pharmaceuticals Inc||0.384|
|62||Virgin Media Inc||0.391|
|64||NII Holdings Inc||0.32|
|65||Cognizant Technology Solutions Corp||1.013|
|66||Teva Pharmaceutical Industries Ltd||1.889|
|70||Lam Research Corp||0.293|
|71||Seagate Technology PLC||0.309|
|72||Whole Foods Market Inc||0.423|
|73||Vodafone Group PLC||0.989|
|75||Bed Bath & Beyond Inc||0.798|
|76||Akamai Technologies Inc||0.409|
|80||Apollo Group Inc||0.285|
|81||Ctrip.com International Ltd||0.295|
|84||Micron Technology Inc||0.508|
|86||Millicom International Cellular SA||0.459|
|89||Flextronics International Ltd||0.32|
|90||Liberty Media Corp – Interactive||0.414|
|92||Urban Outfitters Inc||0.262|
|93||Infosys Technologies Ltd||0.345|
|95||Life Technologies Corp||0.478|
|96||Joy Global Inc||0.404|
|98||Maxim Integrated Products Inc||0.357|
|99||Check Point Software Technologies Ltd||0.437|
|100||Sears Holdings Corp||0.394|