MOSt Shares NASDAQ 100 ETF

by Manshu on March 24, 2011

in ETF

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.

NASDAQ 100 Components

NASDAQ 100 Components

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.

Taxation

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.

Conclusion

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
2 eBay Inc 1.41
3 Mylan Inc/PA 0.485
4 Dollar Tree Inc 0.306
5 Amgen Inc 1.158
6 Celgene Corp 1.133
7 Symantec Corp 0.677
8 Activision Blizzard Inc 0.578
9 Google Inc 4.33
10 Marvell Technology Group Ltd 0.565
11 DENTSPLY International Inc 0.229
12 BMC Software Inc 0.447
13 Dell Inc 0.45
14 DIRECTV 1.223
15 Mattel Inc 0.459
16 Costco Wholesale Corp 0.777
17 FLIR Systems Inc 0.235
18 Cephalon Inc 0.19
19 Yahoo! Inc 0.47
20 QIAGEN NV 0.205
21 Fastenal Co 0.369
22 Microchip Technology Inc 0.268
23 Apple Inc 20.651
24 Express Scripts Inc 1.247
25 Cisco Systems Inc 1.99
26 Autodesk Inc 0.449
27 Electronic Arts Inc 0.238
28 Starbucks Corp 1.562
29 Linear Technology Corp 0.495
30 Wynn Resorts Ltd 0.707
31 CA Inc 0.551
32 Staples Inc 0.52
33 Biogen Idec Inc 0.797
34 Warner Chilcott PLC 0.275
35 Ross Stores Inc 0.365
36 Intuit Inc 0.872
37 Broadcom Corp 0.877
38 O’Reilly Automotive Inc 0.358
39 Oracle Corp 3.22
40 Intuitive Surgical Inc 0.568
41 Garmin Ltd 0.252
42 F5 Networks Inc 0.374
43 Paychex Inc 0.512
44 Amazon.com Inc 2.402
45 CH Robinson Worldwide Inc 0.591
46 Illumina Inc 0.406
47 Citrix Systems Inc 0.674
48 Xilinx Inc 0.529
49 Adobe Systems Inc 0.777
50 Baidu Inc/China 1.397
51 PACCAR Inc 1.063
52 Gilead Sciences Inc 1.467
53 Sigma-Aldrich Corp 0.324
54 News Corp 1.03
55 SanDisk Corp 0.525
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
63 NVIDIA Corp 0.643
64 NII Holdings Inc 0.32
65 Cognizant Technology Solutions Corp 1.013
66 Teva Pharmaceutical Industries Ltd 1.889
67 Microsoft Corp 3.919
68 Expedia Inc 0.325
69 Genzyme Corp 1.078
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
74 Cerner Corp 0.353
75 Bed Bath & Beyond Inc 0.798
76 Akamai Technologies Inc 0.409
77 VeriSign Inc 0.26
78 NetApp Inc 0.968
79 QUALCOMM Inc 5.032
80 Apollo Group Inc 0.285
81 Ctrip.com International Ltd 0.295
82 Fiserv Inc 0.544
83 NetFlix Inc 0.446
84 Micron Technology Inc 0.508
85 Stericycle Inc 0.328
86 Millicom International Cellular SA 0.459
87 KLA-Tencor Corp 0.424
88 Intel Corp 2.009
89 Flextronics International Ltd 0.32
90 Liberty Media Corp – Interactive 0.414
91 priceline.com Inc 1.004
92 Urban Outfitters Inc 0.262
93 Infosys Technologies Ltd 0.345
94 Altera Corp 0.782
95 Life Technologies Corp 0.478
96 Joy Global Inc 0.404
97 Comcast Corp 1.587
98 Maxim Integrated Products Inc 0.357
99 Check Point Software Technologies Ltd 0.437
100 Sears Holdings Corp 0.394

{ 21 comments… read them below or add one }

Sumant March 24, 2011 at 7:45 pm

Excellent review. Nice product for getting an international diversification.
However it’s not cheap. A 1% expense ratio for a passive fund with no fund manager seems unjustified.
Would request you to review this international fund as well:
http://www.benchmarkfunds.com/Products/HangSeng/Overview.aspx

Reply

Manshu March 27, 2011 at 9:25 am

In an Indian context – I don’t think there is any fund that charges less than a percent do they? I wish we had the likes of Vanguard here which charge as low as 0.17% but that’s not happened yet.

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Sumant March 27, 2011 at 10:16 am

Benchmark ETF (Nifty BEES) charges 0.5%
But i agree . we are not at the level of Vanguard yet.

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Manshu March 27, 2011 at 10:43 am

oops I forgot about that – thanks for bringing it to my attention again 🙂 I hope GS buying out Benchmark doesn’t affect their low cost. They’re the best as far as cost is concerned.

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Mithlesh March 25, 2011 at 1:01 am

I applied in this one recently.I won’t say its an excellent investment option . But , i just wanted to have some exposure to US technology stocks and invested in it.

I think its a good idea for diversification of your portfolio and you can take a small exposure to this fund.

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Manshu March 27, 2011 at 9:21 am

So, what percentage did you opt for?

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mithlesh March 27, 2011 at 9:42 am

nothing much really…Just the minimum amount of 10k. I am over invested in indian stock market and dont have any extra money for adventures in NFOs :)-

Thanks for the nice review !!

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Manshu March 27, 2011 at 10:45 am

Alrighty – thanks for your comment and I hope your positions rise quite a bit!

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Santosh Navlani March 25, 2011 at 2:54 am

Very useful post, Manshu. For people who believe that technology companies like Apple, Google, Amazon are going to continue to grow for some more years, its makes a very good investment decision.

But as you rightly pointed out, the exchange-rate risk is the dampener. If one is an optimist & believes that annual returns over 2-3 years are going to be more than 12-15%, then s/he also needs to see how much of returns would be wiped out if the rupee appreciates as well. One has to see if the differential between rate of returns in the ETF & rate of appreciation in rupee is positive (sizable), then its definitely worth a buy. Currency experts can guide us here better…

On optimistic note, considering that companies like Facebook, Zynga, Groupon, Linkedin, etc. are going to be listed in not-so distant future & would most probably be included in the index sooner (given their hefty valuations), one can definitely expect to make money in 2-3 years. But for a 5-year horizon, one definitely needs to be evaluate the currency risk better as if Indian Stock Markets appreciate then the rupee is bound to appreciate as well against the dollar.

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Manshu March 27, 2011 at 9:17 am

I remember during QE1 and QE2 a lot of people felt that the long term impact will be dollar collapse or at least a significant fall in $ value. I think I wrote something about that myself, but so far nothing has happened. There are so many factors at play when you think about exchange rates that I feel it’s better just to ignore that and treat this as you’d treat any other investment. Just invest regularly if you’re convinced of the underlying shares.

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Vijay March 25, 2011 at 10:00 am

Nice post! Pretty detailed analysis i must say! Thanks!!!

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Manshu March 27, 2011 at 9:12 am

And on topic as well 🙂

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Chirag March 26, 2011 at 7:47 pm

Great review Manshu.
I think this ETF is too diversified..
Feel it’s safe to moderate..

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Manshu March 27, 2011 at 9:04 am

Thanks Chirag – If the broader tech market falls then all these stocks will fall too. I guess it’s better than owning just a tech stock, but after all these are all stocks which are similar in nature.

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Chirag March 28, 2011 at 12:05 am

Yes true.
25% weight of the ETF is GOOGLE & APPLE!

Steve Job’s statements, retirements will have a huge impact on the ETF’s prices. 🙂

Reply

Manshu March 28, 2011 at 6:52 am

LOL – let’s hope he doesn’t sneeze too much 🙂

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N. Karmali April 17, 2011 at 6:15 pm

Manshu,
Nice reading and good explanation as to the product an
risk of exchange fluctuation.
Thanks for the G8 information.

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Manshu April 18, 2011 at 6:02 pm

Thanks for your comment Mr. Karmali.

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Kapil Visht June 17, 2012 at 10:52 pm

Have written a Blog on the performance of the MOSt Nasdaq 100 ETF in the past one year.

Here is the link – http://mostnasdaq100etf.blogspot.in/

Regards
– Kapil Visht

Reply

Manshu June 18, 2012 at 12:14 am

Very good analysis Kapil, I’m going to share on my Twitter & OneMint’s Facebook wall as well.

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bhavani August 24, 2012 at 11:54 am

Sir, I am interested in investing in this ETF ,( SIP ) what is your advise?$at 55+inr and APPL at 660+, is it a good investment?pl let me know.thanks for your time and interst.

Reply

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