Edelweiss Mutual Fund has come up with an open-ended fund of fund scheme investing primarily in JPMorgan Funds – US Technology Fund, an equity fund which invests primarily in US technology companies with strong fundamentals.
A fund of fund (FoF)scheme is a passively managed scheme that mirrors the feeder fund. As per regulations, Fund of fund schemes invest a minimum 95% of total assets of the scheme in the underlying fund/s. A FOF is a unique investment proposition because it is a mutual fund scheme that invests in schemes of other mutual funds offering a well-diversified product to reduce the volatility involved.
This modus operandi allows investors to hold a single product rather than directly investing in various regular mutual fund schemes to provide optimum returns from a portfolio of well researched funds.
Technological advancements are taking place globally and, especially, in the U.S. Continuous evolutions in technology have given rise to host of companies that are performing well and keeping up with these advancements. JP Morgan US Technology Fund, an actively managed fund, has been capturing this evolving space and investing mostly in emerging companies.
JP Morgan US technology Fund invests in many of the transformational technologies that are in early stages of adoption.
Graph: Emerging Technology companies in which JP Morgan US technology Fund invests…
And Edelweiss Mutual Fund is of the view that technology is a broad segment that could prove lucrative returns for returns over a long term hence launched, Edelweiss US Technology Equity Fund of Fund.
Table 1: Details of Edelweiss US Technology Equity Fund of Fund
|An open-ended fund of fund scheme investing in JPMorgan Funds – US Technology Fund.
|Fund of funds- overseas
|To seek to provide long term capital growth by investing predominantly in JPMorgan Funds – US Technology Fund, an equity fund which invests primarily in US technology companies with strong fundamentals.
However, there is no assurance that the investment objective of the Scheme will be realized, and the Scheme does not assure or guarantee any returns.
|Rs 5,000 and in multiples of Re 1 thereafter
|Rs 10 per unit
|Mr Bhavesh Jain and Mr Hardik Varma
|Russel 1000 Equal Weighted Technology Index
|February 14, 2020
|February 28, 2020
(Source: Scheme Information Document)
How will Edelweiss US Technology Equity Fund of Fund allocate its assets?
Under normal circumstances, the scheme’s asset allocation pattern will be as under:
Table 2: EUSTEFoF’s Asset Allocation
|Indicative Allocation (% to net assets)
|Shares of the underlying Fund i.e. JPMorgan Funds – US Technology Fund*
|95% to 100%
|Money Market Instruments (with maturity not exceeding 91 days) including Tri-Party Repo*, cash & cash equivalents
|0% to 5%
|Low to Medium
*Investors are requested to note that the Shares of Underlying Fund should be considered conceptually similar to the units of a fund.
The Scheme shall not invest in derivatives, securitized debt and shall not engage in stock lending.
The Scheme shall make investments in foreign securities as per clause 2(x) of SEBI Circular no. SEBI/IMD/CIR No.7/104753/07 dated 26 September 2007.
Cash will be maintained for purposes of Redemptions and day-to-day expenses of the Scheme.
Under normal market conditions, the corpus of the Scheme shall be invested in shares of JPMorgan Funds – US Technology Fund as per the asset allocation detailed above. However, prevailing market conditions may compel the AMC to invest beyond the range set out above. Such deviations shall however normally be for short term purposes, for temporary defensive considerations and with the intention of protecting the interests of the Unit Holders. In the event of deviations, rebalancing will be carried out within 30 (thirty) days.
The Underlying Fund can invest in Securities listed in India. The Underlying Fund can invest in Securities of Indian companies listed outside India. For e.g. – If Securities of company A are listed in India and also on a stock exchange outside India, then the Fund Manager can buy the securities of company A from the stock exchange which is located outside India. The Underlying Fund shall not invest in unlisted securities issued by companies registered in India. The Underlying Fund shall invest in derivatives and engage in stock lending; however it does not invest in securitized debt and does not engage in short selling. The exposure of the Underlying Fund in India will not be gained through participatory notes. The exposure and limit is further subject to SEBI guaidelines issued from time to time.
(Source: Scheme Information Document)
What will the Investment Strategy be?
The primary investment objective of Edelweiss US Technology Equity Fund of Fund is to seek to provide long term capital growth by investing predominantly in JPMorgan Funds – US Technology Fund, an equity fund which invests primarily in US based Technology Fund with strong fundamentals.
The Scheme may also invest a part of its corpus in money market instruments and/or units of liquid schemes to meet liquidity requirements from time to time. The Scheme does not guarantee or indicate any assured returns.
The risk control measures
Edelweiss US Technology Equity Fund of Fund shall invest in JPMorgan Funds – US Technology Fund, an equity fund which invests primarily in US based Technology Fund with strong fundamentals. This allocation will be steadily monitored, and it shall be ensured that investments are made in accordance with the scheme objective and within the regulatory and internal investment restrictions prescribed from time to time.
Diversification across sectors/companies at the time of investments shall also manage the risk. The Fund has designed a detailed process to identify, measure, monitor, and manage the portfolio risk. The aim is not to eliminate the risk completely, but to have a structured mechanism towards risk management thereby maximizing potential opportunities and minimizing the adverse effects of risk.
Who will manage the scheme?
Edelweiss US Technology Equity Fund of Fund will be co-managed by Mr Bhavesh Jain and Mr Hardik Varma.
Mr Bhavesh Jain has done his Masters in Management Studies with specialisation in Finance from the Mumbai University. Mr Jain has a total work experience of over 9 years in the equity market segment. He has been associated with the AMC for over three years, formerly as an Equity Dealer and presently as Assistant Fund Manager of the schemes of the Fund. He was previously associated with Edelweiss Securities Limited as SGX Nifty Arbitrage Trader.
Currently at the Edelweiss Asset Management Company some of the schemes Mr Jain manages include Edelweiss Balanced Advantage Fund, Edelweiss Arbitrage Fund, Edelweiss ASEAN Equity Off-shore Fund, Edelweiss Greater China Equity Off-shore Fund, Edelweiss US Value Equity Offshore Fund, Edelweiss Europe Dynamic Equity Offshore Fund, Edelweiss Emerging Markets Opportunities Equity Offshore Fund, Edelweiss ETF – Nifty 50, Edelweiss ETF – Nifty Bank, Edelweiss ETF – Nifty Quality 30 and Edelweiss Maiden Opportunities Fund – Series 1
Mr Hardik Verma has done his MBA from NMIMS Mumbai and CFA level 3. Mr Verma has an overall experience of 6 years as a Research Analyst and he has been associated with the AMC since December 2016 as an Equity Research Analyst. Prior to joining the AMC, he was associated with ICICI Securities where he covered the Indian IT services sector based on their fundamentals and valuation.
Currently at the Edelweiss Asset Management Company some of the schemes Mr Jain manages include Edelweiss Aggressive Hybrid Fund, Edelweiss Large Cap Fund, Edelweiss Equity Savings Fund, Edelweiss ASEAN Equity Offshore Fund, Edelweiss Greater China Equity Off-shore Fund, Edelweiss US Value Equity Offshore Fund, Edelweiss Europe Dynamic Equity Offshore Fund and Edelweiss Emerging Markets Opportunities Equity Offshore Fund.
The outlook for Edelweiss US Technology Equity Fund of Fund:
Edelweiss US Technology Equity Fund of Fund is a passively managed fund that invest in JP Morgan US Technology Fund that follows a robust investment strategy and investment process to pick value stocks.
Image : Tentative Investment Strategy of the underlying Fund
Currently, underlying fund of the Edelweiss US Technology Equity Fund of Fund consist of the following top ten holdings.
Table 3: Portfolio Holdings
(Source: JP Morgan Funds – US technology Funds)
Data as on December 31, 2019
Hence the performance of the Edelweiss US Technology Equity Fund of Fund is hinged on the performance of the underlying scheme. As the value of equity securities may go down as well as up in response to the performance of individual companies and general market conditions.
The single market in which the underlying fund invests may be subject to particular political and economic risks, and as a result, Edelweiss US Technology Equity Fund of Fund may be more volatile than more broadly diversified funds.
Besides, any change in the investment policies or fundamental attributes of the underlying schemes will affect the performance of the scheme held in the portfolio. Hence, Edelweiss US Technology Equity Fund of Fund is a high risk-high return investment proposition. So, understanding the overall implications before investing is extremely important.
This article first appeared on PersonalFN here