Edelweiss Asset Management Company has announced the launch of a domestic as well as world healthcare index fund with MSCI. The new fund offer (NFO) which would open to the outsiders from Tuesday would mark the entry of MSCI into India’s passive fund space.
The fund would have a 70:30 domestic global split and would invest in 45 stocks which would give the investors the benefit of equity taxation in India. Top 25 healthcare stocks in India based on the market capitalization will have an investment of around 70% of the funds. 30% of the funds will be invested in 20 US healthcare stocks. The US stocks will consist of the top five scripts by market cap from for sub-industries-biotechnology, pharmaceuticals, healthcare equipment, and life sciences tools & services.
The three types of companies under Indian pharma space are firstly, those which sell branded generics in India which are usually subsidiaries of global pharma companies. Secondly, those who sell generics in the US market mostly the largest pharma companies in India. And lastly, those companies who sell active pharmaceutical ingredients (APIs). The fund will capture global segments as well as all of these three components, currently which is not present in India such as the large pharma majors who invest heavily in research, said Harshad Patwardhan (Chief investment officer-equities at Edelweiss Mutual Fund).
Radhika Gupta (CEO, Edelweiss Mutual Fund) said that the international portion of the fund has been active for the selection of segments. She also clarified that the subsequent rebalancing will be rules-based and will not involve fund manager discretion.
Patwardhan said that there has been a run-up of pharma stocks in 2020. He explained that this was due to factors such as reduction of competitive pressures in the US market and the increase of investment in pharma research by governments and spending on healthcare by consumers. After many years of low returns for the sector, the run-up came as really good news.
Gupta suggests the investors consider the fund as a part of their asset allocation. An example could be when a portfolio with 50% allocation to healthcare would not be recommended, even if you are bullish on healthcare as a theme. She also advised the investors who are already investing outside India to consider any overlap the fund may have by using their existing portfolio.
