Mirae Asset Mutual Funds launches ESG Sector Leaders ETF – A Review
Mirae Asset Mutual Fund is planning to launch ESG Sector Leaders ETF that would open for subscription on October 27, 2020. Mirae
Asset ESG Sector Leaders ETF would invest based on Environment, Social and Governance criteria. ESG is gaining ground with increase in total assets under socially-responsibility investment. What are the issue details of the Mirae Asset ESG Sector Leaders ETF? Should you invest in this ETF now?
What are Exchange Traded Funds (ETFs)?
Skip this section if you are already aware about ETFs.
Wikipedia defines ETF as “an exchange-traded fund is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds and generally operates with an arbitrage mechanism designed to keep it trading close to its net asset value, although deviations can occasionally occur”.
What is ESG theme?
Skip this section if you are already aware about ESG.
ESG represents factors viz. Environmental (such as impact of business on natural resources), Social (such as a business, having undesirable social of the scheme impact) and Governance (being the way in which the company is run). Quality companies with a competitive advantage, sustainable business model and visibility of earnings growth are the best avenues for long term wealth generation. ESG factors can complement traditional tools for evaluating and identifying quality businesses and thus improve the overall understanding of the company.
Issue details of Mirae Asset ESG Sector Leaders ETF
This is an open-ended scheme replicating / tracking NIFTY100 ESG Sector Leaders ETF. Here are the issue details.
|Scheme reopens for continuous purchase/sale||After 5 working days from closure of NFO|
|Minimum investment (Lumpsump)||Rs 5,000|
|NAV of the fund||Rs 10 during NFO period|
|Risk||Moderately High Risk|
|Max Total expense Ratio (TER)||1.00%|
|Benchmark||Nifty100 ESG Sector Leaders TRI|
What is the investment objective of the Mirae Asset ESG Sector Leaders ETF?
The investment objective of the scheme is to generate returns, before expenses, that are commensurate with the performance of the Nifty100 ESG Sector Leaders Total Return Index, subject to tracking error.
There is no assurance or guarantee that the investment objective of the scheme will be realized.
What is the allocation pattern in this ETF scheme?
Here is how the ETF would invest:
|Type of instruments||Allocation %||Risk Profile|
|Securities included in the Nifty100 ESG Sector Leaders
|95% to 100%||High|
|Money market instruments / debt securities, Instruments
and/or units of debt/liquid schemes of domestic Mutual
|0% to 5%||Low to medium|
What does NIFTY100 ESG Sector Leaders ETF contain?
Nifty100 ESG Sector Leaders Index aims to track the performance of select companies within each sector of the Nifty 100 which have scored well on management of ESG risk and which do not have involvement in any major controversies.
Currently it has 48 companies in this index. Here is the list and their weightage in this index by sector and top constituents as of now.
Why to invest in the Mirae Asset ESG Sector Leaders ETF?
Here are a few reasons to invest in such ETF schemes.
1) It is unique ETF scheme that invests in ESG Criteria.
2) As indicated in our earlier articles, according to a report by Bloomberg Intelligence earlier, ESG and sustainability-focussed ETFs should continue to grow based on niche themes such as low-carbon, climate and gender. Now this concept is spreading wide in India.
3) There has been strong research evidence of ESG investing delivering superior returns since companies with strong sustainability scores demonstrate better operational performance and are less risky.
Some key risk factors you should consider before you invest in such ETFs
One should consider some of these risk factors / negative factors before investing.
1) This scheme invests based on ESG criteria where such investment strategy is relatively new in India. This may or may not gain from such new strategies in the short term.
2) Companies that have good ESG criteria could be available at high share prices. This ETF might contain in such stocks at a high price for which the real worth could be at a low.
3) It invests upto 5% in debt instruments where there is interest rate risk and risk of downgrading of corporate credit rating.
4) Investors should not assume any guaranteed returns from ESG MF schemes.
6) Investors should read the SID / KIM / prospectus before investing in such ETFs.
How is the Performance of NIFTY100 ESG Sector Leaders ETF?
Now, let us look at the performance of this Index. Total returns include dividends, interest and rights received by the shareholders (if any).
Here is the last 10 years chart of the NAV value movement of this index.
Should you invest in the Mirae Asset ESG Sector Leaders ETF?
Like we said earlier, India inc has seen several scams in the last few years. There are many corporates where the credit rating has fallen within a span of a few months (e.g. DHFL). These are some of the major concerns, investors are worried about now. Corporates with good corporate governance tend to perform well in the medium to long term. Indian investors are now moving towards focussing on investing in companies that meets ESG criteria which could be a relatively safer bet. Such schemes are classified as thematic funds and are high risk as they focus on stocks that meets specific criteria. If you are a high risk investor, you can invest in this scheme. Moderate to low risk investors should stay away from such investments.
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