Return from govt-run firms' ETFs not impressive

Things could change in 2-3 years; give it time to perform

Retail investors in Goldman Sachs’ CPSE ETF, from its launch in March 2014, wouldn’t be too happy with returns of 5.79 per cent. In comparison, the Sensex has returned 22.37 per cent. Even if they have stuck around since the launch and have received the loyalty bonus of one unit (for every 15 units held) plus the earlier five per cent discount, their returns would hardly beat the Sensex.

However, the scheme has performed better than its own benchmark index – the CPSE index. In the past year, the CPSE index is down 18.20 per cent, whereas the CPSE ETF has fallen 15.81 per cent, according to data from Value Research. The Sensex, during the same period, is down 1.89 per cent. The fund’s asset under manager is Rs 2,009 crore.

Obviously, the usual advice of giving a few quarters to the fund to perform is long past. But experts believe more time needs to be given to the scheme. Hiren Dhakan, associate fund manager, Bonanza Portfolio, said: “The fund was meant only for those who were willing to take concentrated risk in 10 stocks. Oil & gas sector accounts for more than 40 per cent of the fund portfolio. That is why although the market is up 10-12 per cent in the past year, the ETF has not performed as well.

The 10 stocks in the ETF are Bharat Electronics, Container Corporation, Indian Oil, Power Finance Corporation, Coal India, Rural Electrification Corporation, GAIL India, Oil India, Engineers India and ONGC. Of these, Engineers India, Oil India, GAIL India and ONGC are trading below the price at the time of the new fund offer.

Since these are public-sector firms, a turnaround in their performance will take time, says Feroze Azeez, deputy CEO, Anand Rathi Private Wealth Management. “PSU companies will require a transformation in their ownership and strategies, which cannot happen in one year's time. Oil & gas companies will go through some tough times. But they have been languishing even before the ETF was launched. Investors must wait for the next two to three years and not exit today,” he says.

Also, with the management of the fund house changing – Reliance Mutual Fund has agreed to buy Goldman Sachs Asset Management – investors might have more choice within the new house to shift their money.

After the merger, investors who wish to exit the ETF can do so seamlessly as they will not incur any charges for switching over to any of Reliance MF's funds. Since the CPSE ETF is a passive fund, a change in management is not likely to affect the composition or performance of the fund. Even if they want to exit it now, they can do so without any exit load.

In 2014, the Goldman Sachs CPSE ETF was launched with much fanfare. It offered retail investors to participate in equity markets by investing in a basket of top-rated public sector undertakings. It also allowed tax exemption as the ETF was eligible under the Rajiv Gandhi Equity Savings Scheme.

But now, the oil & gas sector has already been through a lot of volatility. Currently, in the global market, crude oil prices are down. The US is not stocking oil reserves. But once oil pricing gets reversed, oil companies’ margins will improve. Ideally, investors should stay invested for another four to six quarters - that’s the time it will take for the sector to gain, adds Dhakan.