Edelweiss MF is launching a financial index fund tracking an MSCI index instead of Bank Nifty. I've no clue why. They have a couple of smart-beta (disgusting meaningless term) ETFs. I think they would've had much better success than this new fund
sebi.gov.in/filings/mutual…
sebi.gov.in/filings/mutual…
They have a couple of smart-beta (this is a disgusting meaningless term) ETFs. I think they would've had much better success fixing those ETFs than this new fund. But hey, what do I know :)
Sure, there is only one Banking Index fund, there are a bunch of ETFs, but just one fund by Motilal. Of course, maybe they want to build out a thematic stable. Every large fund house has a version of this and that's fine. But who are these products aimed at?
Because in my view these sectoral and thematic have no place in an investor's portfolio. Your core funds will give you all the broad market exposure you need. These are speculative products at best. For example, if you wanted to play the recent Pharma Rally.
Sectoral/Thematic funds can be cyclical in nature with bouts of stupendous rallies and years, if not decades of sideways moves. But that also leads to another important question - are the aam retail investors equipped to express tactical views?
Now before you answer, look at this date point. Now, I'll add a caveat. This data is flawed but that doesn't change the bottom line. If 6 out of 10 investors in diversified equity investors don't stay invested in a diversified equity fund, what chance do they have at 
timing a thematic or a sectoral fund? Look it makes perfect sense for an AMC to offer a stable of thematic funds. There are all kinds of investors and some will need options for expressing tactical views and these funds fit the bill, because you get purer/concentrated exposures
But this is a tiny group of investors. Broadly speaking what's good for an AMC is not good for you. But make no mistake thematic is big business in the asset management landscape. If I was running an AMC I'd launch em too.
In fact, this is where the action has been because the core wars are to a large extent done and dusted in the US. The cost compression in core large-cap funs reached the logical conclusion of Zero expense ratio when BNY Mellon launched fully free ETFs
But everybody from Vanguard to Blackrock has been looking elsewhere for higher margins and thematics are a natural answer. And then there are specialized niche players like Direxion, GlobalX, Ark (monster) who offer specialized thematic exposures.
It's no brainer for an AMC to launch a thematic fund and charge 60bps to 1% vs a core index fund for 10bps. But what's good for them isn't good for you an answer. Thematics are high-risk bets that can fail spectacularly. Remember that craze over infra during the 2000s?
And here's how that ended.
Thematics are story funds and stories almost always end badly! ALMOST ALWAYS. The thing about markets is narratives drive them and narratives are addictive. Everybody falls for them too.
Being a low IQ person I know I have and lost money. The best narratives are almost always bad for your portfolio. Stories make money for people selling them, not for you. Take this financial itself, I've seen other sales pitches from people selling Bank Nifty ETF too.
The story is that "this is a financial economy and you need this in your portfolio". True, but do you need separate exposure when your core equity funds will almost always give you the exposure you need.
That's the beauty of an index fund, it will give you all the sectoral exposures that you need. Even an active fund will pretty much do that, but charge you extra, but the net result is the same. If some sector is emerging, your core funds will have an allocation to that.
At the margin, you can speculate with these products by having a tiny allocation in your account to speculating. Nothing wrong with that, you can use this as a release. But these niche funds should never be part of your core portfolio.
As an aside - don't fall for stories. They are good for people selling them, not for you and your portfolio.
