The ETFs that focus on energy, metals and FMCG are the first of their kind. But investing in these funds may not give the returns one hopes for. Because, while the idea of focusing on a sector is good, picking the right sector is easier said than done
Axis Mutual Fund is all set to enter the growing market for exchange traded funds. It has filed offer documents to launch Axis Metal ETF, Axis FMCG ETF, Axis Banking ETF and Axis Energy ETF. Currently, there are no ETFs linked to energy, metals, and FMCG indices and these ETFs from Axis are the first of their kind.
All these ETFs are sector ETFs and will focus on stocks of just one sector. The theoretical case for sector funds is strong, because it can be based on two very strong tenets of investing. One, the focus and concentration on a few stocks works wonders. Two, identifying the right sector is the key to stock market success.
Sector funds incorporate both these aspects of investing. They focus on just one sector at a time and if the sector does well, the fund’s performance can be among the best. Therein lies the catch—accurately picking a winning sector, just in time, is easier said than done. It is known only in hindsight. Fund managers have always been bad in selecting the winning sectors. They were caught unawares by the tech bust of 2000 and the sluggish pace of infrastructure development since 2006.
That is why we believe that while the theoretical logic of sector funds is attractive, in practice, it is best to avoid them. They cannot beat the best of diversified equity funds.
Axis Energy ETF
As per the offer document, Axis Energy ETF can invest 95%-100% of its corpus in stocks covered by the CNX Energy Index, and up to 5% in money market instruments. The CNX Energy Index constitutes stocks like BPCL, Cairn India, Gail (India), NTPC, Reliance Industries and Tata Power. The fund aims to be fully invested in equity at all times. The CNX Energy Index has given a compounded return of 12.68% in the last five years.
Axis Metal ETF
This will invest 95% of its corpus in stocks in the BSE Metal Index and up to five per cent in money market instruments. The BSE Metal Index comprises 13 stocks, among them Tata Steel, Hindalco, Jindal Steel & Power, Sesa Goa and JSW Steel. Tata Steel has the highest weight in the index at 22.38% (as on 9 May 2011). The BSE Metal Index has given a compounded return of 12.74% in the last five years.
Axis FMCG ETF
The fund will invest 95% of its corpus in the CNX FMCG Index and up to five per cent in money market instruments. The CNX FMCG Index constitutes 15 stocks which include Britannia, Colgate Palmolive, Dabur and ITC. The CNX FMCG Index has been able to give a return of just 9.61% in the last five years.
Axis Banking ETF
Currently, there are three bank ETFs—Bank BeEs, Kotak PSU Bank ETF and Reliance Banking ETF. Axis Banking ETF will invest in stocks that constitute the CNX Bank Index. CNX Bank Index has stocks like Axis Bank, Bank of Baroda, Bank of India and HDFC Bank. CNX Bank Index represent 14.79% of the free float market capitalisation of the universe of stocks traded on the National Stock Exchange as on 31 March 2011. The CNX Bank Index has given a return of 20.21% in the last five years.
A bigger problem with ETFs in India is that they are illiquid. You pay more than the NAV to buy them and if you are forced to sell in panic for whatever reason, you pay an even bigger price, because the purchase bids may be much lower than the fair value.
Several major banks have not updated the savings account interest rate on their websites even a week after the Reserve Bank of India hiked it to 4%
All the major banks, which are usually prompt in updating their websites with the changes in interest rates on loans and other schemes, don't seem as interested in updating their customers about the recent hike in the savings account interest rate.
On 3rd May 2011, the Reserve Bank of India (RBI), issued a notification to all banks, including state and central co-operative banks, primary (urban) co-operative banks, scheduled commercial banks, saying that "it has since been decided to increase the interest rate on domestic and ordinary non-resident savings deposits as well as savings deposits under the Non-Resident (External) Accounts Scheme by 0.5%, from 3.5% to 4% annum, with immediate effect." The savings account rate has been hiked after 19 years.
However, it has been more than a week and yet most banks, including state-run banks, have not updated the data about the savings interest rate on their websites, Moneylife found after checking the websites of banks which come under the RBI's regulation.
While it is not mandatory for banks to update their websites regularly, this indicates how much the banks are actually interested in updating their customers, when this involves an increase in the cost of funds for the banks.
State-run banks, including the Central Bank of India and the State Bank of Hyderabad, still show the savings account interest rate as 3.5% on their websites. Although some like the State Bank of India, State Bank of Patiala and State Bank of Travancore, have changed this to 4%.
Axis Bank, Bank of Maharashtra, City Union Bank, Coastal Local Area Bank Ltd and Karnataka Bank Ltd still show the savings account interest rate at 3.5%.
Among the foreign banks that have not bothered to change the rate on their websites are Abu Dhabi Commercial Bank Ltd, Barclays Bank India, BNP Paribas and Chinatrust Commercial Bank.
It was also observed that officials at some of the banks were not aware about the change in the savings account rate announced by the RBI last week. When Moneylife contacted an executive at BNP Paribas to find out the latest savings interest rate, she said that "the general savings account interest rate is 3.5%".
These traces are within specified limits, but low levels of exposure to a neurotoxin like lead can be hazardous; very large single or long-term intake of copper may cause liver disease
The Consumer Education and Research Society (CERS), based in Ahmedabad, has come out with a product-testing laboratory test on 12 brands of organic tea and three conventional tea brands. The findings are shocking, to say the least.
The CERS comparative product laboratory test on 12 organic tea brands has discovered the presence of heavy metals—like lead and copper-in all of them. However, these metals were present in these organic brands within the specified limits. Three conventional tea brands—which do not claim to be 'organic'—were also tested. All these three conventional tea brands contained heavy metals such as lead and copper—along with traces of pesticides.
The results revealed that the highest amount of lead was found in 'Organic Tea Tulsi Green'—1.4 parts per million (ppm—and the lowest was in 'Indien Gold—Broken' (0.1ppm). Amongst the conventional brands, 'Wagh Bakri Strong CTC' had the highest level of 1.3ppm and the lowest level was found in 'Tata Tea Premium' and 'Brooke Bond Red Label'—both with 0.9ppm.
CERS found that the highest amount of copper was found in 'Assam Strong Leaves' (31.2ppm) and the lowest in 'Organic India Tulsi Ginger' (12.3ppm). Presence of copper was found to be in the range of 15ppm to 16ppm in all three conventional tea brands.
Besides heavy metals, these tea brands were also tested for the presence of pesticides like Lindane, Aldrin, Dieldrin, DDT, Endosulfan, Dicofol and Ethion.
According to the test result, all the organic tea brands were found to be free from containing any residues of the above seven pesticides.
Interestingly, the three conventional tea brands—Tata Tea Premium, Brooke Bond Red Label and Wagh Bakri Strong CTC—contained pesticide residues—DDT (ranging from 0.04ppm to 0.1ppm); Dicofol (ranging from 0.1ppm to 0.3ppm) and Ethion (ranging from 0.04ppm to 0.1ppm), which are well within the specified limits.
CERS says that since all the brands it tested had detectable levels of lead and copper in them, it decided not to select a 'best buy.'
Out of the 12 organic tea brands, seven were procured from Germany—though produced in India. The remaining brands were purchased from the local market.
Since there are no analytical standards for organic tea in India, CERS followed the standards applicable to conventional tea as standards for organic tea. Organic tea samples were tested against the values set by the Bureau of Indian Standards (BIS).
The press note by CERS quoted Wagh Bakri's manufacturers as saying, "Lead and copper cannot be removed completely as they are present in the soil and water and are absorbed by the plant through preferential absorption. There is no difference in taste between organic and conventional tea. Consumers who are into buying other organic food products may invest in organic tea, for others, conventional tea is good enough."
Tata Tea was quoted in a press release as saying, "Environmental contamination through air and soil are responsible for lead contamination in tea plants, on which we have no control."
On the presence of pesticide in its tea sample, Tata Tea said that "though the Tea Board of India does not approve the presence of DDT, Dicofol that is structurally similar to DDT, is an approved pesticide. Dicofol could have DDT contamination. The use of Dicofol in conventional tea plantations and the long residue life of DDT could cause its presence in tea. Tata Tea raised an important point that although the PFA (Prevention of Food Adulteration) Act does not mention the limits for DDT in tea (implies it should be nil), then how does it allow up to 3.5ppm of DDT in vegetables?"
CERS recommends that the BIS should stipulate analytical standards and testing requirements for organic foods and tea and to make organic certification mandatory. The BIS should monitor the quality of pesticide formulations used in tea plantations for the presence of chemical contaminants. CERS also wants the Food Safety and Standards Authority of India (FSSAI) to revise and bring down the maximum limits for metal contaminants in tea, especially for lead, and make the standards stricter.