DSP US Flexible Equity Fund Review

Published on / By M. Pattabiraman Twitter: @pattufreefincal

Published: July 19, 2021 at 7:47 am

Last Updated on December 29, 2021

DSP US Flexible Equity Fund is an open-ended fund of fund scheme investing in BlackRock Global Funds – US Flexible Equity Fund (the underlying fund). The scheme was launched in Aug 2012 and now has an AUM of about Rs. 474 crores.

BlackRock Global Funds – US Flexible Equity Fund has a mandate to invest 70% of its assets in US equity and is benchmarked to the Russell 1000 Total Return Index – the 1000 top companies by market capitalization in the United States.

According to DSP, ” the term “Flexible” in the name of the Scheme signifies that the Investment Manager of the Underlying Fund can invest either in Growth or value investment characteristic securities placing an emphasis as the market outlook warrants”.

Domiciled in Luxembourg,  BlackRock Global Funds – US Flexible Equity Fund has an AUM of 1,613.11 Million USD. Source: Fund factsheet. The top ten holdings ( 37.24% of the total portfolio) as of 30th June 2021 are:

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    1. Microsoft Corporation 5.92%
    2. Alphabet inc 5.79%
    3. Amazon.Com inc 5.19%
    4. Apple inc 3.78%
    5. Visa inc 3.18%
    6. Facebook inc 3.14%
    7. Applied materials inc 2.64%
    8. Unitedhealth group inc 2.62%
    9. Comcast corporation 2.61%
    10. General motors co 2.37%

    The TER of the underlying fund is 0.78%. On top of this, the direct plan is priced at 0.85% and the regular plan at 1.68%. These are atrociously high numbers consider the performance of the underlying fund.

    First, we need to appreciate that there is not much of a return difference between the Russell 1000 and the S&P 500. Shown below are the 5-year and 10-year rolling returns of the two indices. This is because of the way market capitalization weighting works. The dominant stocks in both indices will typically be the same.

    Five year rolling returns of Russell 1000 TR vs S and P 500 TR both in USD
    Five-year rolling returns of Russell 1000 TR vs S and P 500 TR both in USD
    Ten year rolling returns of Russell 1000 TR vs S and P 500 TR both in USD
    Ten-year rolling returns of Russell 1000 TR vs S and P 500 TR both in USD

    So there is nothing special about DSP US Flexible Equity Fund because it invested in a fund that can invest in the Russell 1000 universe. And the above is before expenses!

    Next, we compare the performance of the underlying fund with its benchmark in USD.

    Seven year rolling returns of BlackRock Global Funds – US Flexible Equity Fund compared with RUSSELL 1000 Total Returns Index
    Seven-year rolling returns of BlackRock Global Funds – US Flexible Equity Fund compared with RUSSELL 1000 Total Returns Index
    Five year rolling returns of BlackRock Global Funds – US Flexible Equity Fund compared with RUSSELL 1000 Total Returns Index
    Five-year rolling returns of BlackRock Global Funds – US Flexible Equity Fund compared with RUSSELL 1000 Total Returns Index.

    The lack of performance is quite appalling. Now remove the expenses charged by DSP MF, the return would be even lower. This is a standard problem with all international fund of funds tracking active funds.

    See our previous reviews:

    As of date, Motilal Oswal S&P 500 Index Fund (click the link to check what returns to expect) remains the most reasonable option to invest in the US market (without the concentration risk and volatility of the Nasdaq 100 ETF or FOF from the same AMC). We recommend that investors avoid DSP US Flexible Equity Fund.

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