Unconventional funds gaining traction: ICICI Prudential Nifty Low Vol 30 ETF | Value Research Let’s take a look at ICICI Prudential Nifty Low Vol 30 ETF and how it is picking up steam
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Unconventional funds gaining traction: ICICI Prudential Nifty Low Vol 30 ETF

Let's take a look at ICICI Prudential Nifty Low Vol 30 ETF and how it is picking up steam

ICICI Prudential Nifty Low Vol 30 ETF was launched in July 2017. It was able to amass only Rs 10 crore at its launch. It saw virtually no growth until January 2019 and only grew slowly to about Rs 70 crore till May 2020. Since then, the fund's AUM witnessed a massive growth of 12 times in just 20 months. This was mainly led by inflows, which we estimate to be about Rs 550 crore out of the total growth of close to Rs 600 crore during the last 13 months.

When asked about the reasons for the growing investor's interest in the fund, Chintan Haria, Head - Product Development & Strategy at ICICI AMC, said, "At the time of the launch of this product in July 2017, investor awareness about smart-beta products was very low. With time, as the awareness levels improved, investors realised the potential the product holds. Over the last two years, as the market volatility spiked, in line, the inflows into the fund too witnessed a sizeable uptick. We believe this largely reflects that retail investors are keen to invest in low-volatility-based products."

ICICI Prudential AMC manages over Rs 4.87 lakh crore. It has 28 ETFs with AUM of more than Rs 34,000 crore, including the assets of three of its funds of funds (FoFs) that act as feeder funds. These ETFs constitute about 7 per cent of the AMC's total AUM and thus with Rs 836 crore, the assets of the Nifty Low Vol 30 Index ETF make up a very tiny fraction. The AMC also has ICICI Prudential Nifty Low Vol 30 ETF FoF that acts as a feeder fund to this ETF for those who wish to invest in it without the hassles of maintaining a demat account.

The underlying index consists of top 30 least volatile stocks among the top 100 companies by market cap on the NSE, where the least volatile constituent gets the highest weight (capped at 3 per cent during quarterly review) and so on. Volatility here is calculated as the standard deviation of daily price returns for the last one year. The index, and thereby the fund composition, shifted from having a major allocation from technology to consumer staples (currently more than 25 per cent) in the latter half of 2019.

If we compare the 10-year returns of the index with the broader Nifty 500 TRI on a rolling basis, we see that even though the fund has outperformed the broader Nifty 500 TRI, the quantum of outperformance has reduced significantly since 2017. In the current context, both of them have performed at par over the five-year investment horizon.

As for the ICICI Prudential Nifty Low Vol 30 ETF, Chintan Haria says that investors can look at the fund if they are ready to stay invested for long periods of time, along with the goal to limit the impact of market volatility on investment. One should also be aware that this fund could witness periods of underperformance as compared to the broader market, as is the case currently.


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