New Delhi HDFC Mutual Fund is all set to launch a Fund of Funds (FOF) tracking the MSCI World Index. The MSCI World Index is a developed market index covering 23 markets and over 1,500 companies. The HDFC Developed World Index Fund of Funds (FOF) will feed into various Credit Suisse index funds and ETFs based in Ireland and Luxembourg. These index funds will collectively track the MSCI World Index. The new fund offer (NFO) for the scheme will run from September 17 to October 1. Being an open-ended fund, it will be available for purchase and redemption thereafter.
The MSCI World Index covers the regions responsible for approximately 56% of the world’s gross domestic product (GDP). It accounts for 68% in the US, 19% in Europe, 7% in Japan, 3% in Canada, and the remaining 3% in other developed markets in the Pacific. However, it does not invest in emerging markets such as India and China. Regionally, information technology has the largest share at 22.5%, followed by the financial sector at 13.3% and healthcare at 12.8%. Companies like Apple, Amazon and Facebook have a big weightage in this.
One of the important reasons for investors to invest outside India is diversification. As per HDFC AMC presentation, the correlation between MSCI World (in dollar terms) and Nifty 50 (in rupee terms) in the last 20 years is just 0.38. The valuation for MSCI World is close to Nifty 50, as shown in the presentation. The MSCI World Index has a trailing earnings ratio (PE) of 29.96 compared to 27.01 for the Nifty 50. However, the forward PE of Nifty is higher at 22.40 compared to 19.79 for MSCI World. MSCI World’s Price to Book (PB) ratio of 3.28 is lower than Nifty 50 at 4.12, which means MSCI World Index is cheaper.
The historical returns of MSCI World and Nifty have also been different in different time periods. In the last five years, MSCI World delivered 14.3% in dollar terms as compared to 11.8% on the Nifty 50. However, in the 20-year time frame, Nifty beat MSCI World with a return of 13.4%, as compared to 7.4%. MSCI World. However, across all time frames, the standard deviation of Nifty has been higher than that of MSCI World, which means investing in both the indices can reduce the volatility of your portfolio. If you look at the daily rolling returns that are adjusted for different start and end dates, the MSCI World Index has given a CAGR of 10.3 per cent in rupee terms over the past 10 years. “A fund that tracks multiple developed markets is a good option for Indian investors. Tarun Birani, Founder & Director, TBNG Capital Advisors Private Limited
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