Last Updated on October 9, 2023 at 4:10 pm
Edelweiss US Technology Equity Fund of Fund is the new open-ended fund of fund from Edelweiss AMC that will invest in JPMorgan Funds – US Technology Fund. Here is what interested investors need to know before committing money.
First the basics. A fund of fund is a mutual fund that invests in another mutual fund(s) (aka “underlying fund(s)”). So it will always be taxed like a non-equity fund. Aside from the volatility of the underlying funds, there are two other factors that investors need to be aware of.
(1) Currency risk. The USD-INR rate volatility will determine returns. While over the long term this return is stable and positive, it can fluctuate wildly in the short-term. An illustration of this exchange rate factor can be seen here: Motilal Oswal Nasdaq 100 Fund of Fund: Do not invest!
🔥Secure your future with our Robo-advisory tool trusted by over 3,000 investors and advisors. From effortless retirement planning to funding your children’s biggest dreams, turn your financial goals into reality. 🔥
Subscribe for money management solutions via email! (Link takes you to our email sign-up form) Join 32,000+ readers in our community.
👉 New Tool Alert! NaviPlan: A Privacy-Focused Multi-asset Tracker and Goal Planner 👈
(2) Higher expense ratio. The investor will bear expenses of the fund of fund and the underlying fund(s). To minimise this, the underlying fund is usually an ETF. In the present case, JPMorgan Funds – US Technology Fund is not an ETF or an index fund. Its current expense ratio is 0.72%
Motivation and objective of Edelweiss US Technology Equity Fund of Fund: Invest in sound US-based technology and technology-related stocks that are in the early stages of adoption with a potential to disrupt existing businesses. Source: NFO leaflet (the featured image above is also sourced from this leaflet under fair use norms).
What is the investment objective of JPMorgan Funds – US Technology Fund? According to JPMorgan, its objective is to “provide long-term capital growth by investing primarily in technology, media and telecommunications related US companies”. It follows a fundamental, bottom-up stock selection process to “try and identify the best investment ideas in technology-driven sectors”.
Although the fund has been in existence since Dec 1997, Russell 1000 Equal Weight (EW) Technology Index has been benchmark only since Oct 2017. It is important for investors to appreciate what an equal-weighted benchmark is and how the Russel EW index is different.
Indices like the S & P 500, Nasdaq 1000, Sensex or Nifty are market-capitalization-weighted indices. Higher the market cap of a stock, higher the exposure in the index. An equal-weighted index is one in which all the stocks in the eligible universe have similar weights.
Russel 1000 index is a market-cap-weighted index of the 1000 largest US companies. Technology and technology-related stocks of the Russel 1000 are eligible for inclusion in the Russell 1000 Equal Weight (EW) Technology Index.
Although an equal-weighted index offers better diversification and does not allow a few stocks to dominate the index, it is also quite risky. Take for example the Russel 1000 Equal Weight Index. Index house FTSE Russel adopts a two-step equal-weighting approach to create the Russel 1000 Equal Weight Index
Nine sectors from the Russel 1000 index, Materials & Processing, Utilities, Consumer Staples, Energy, Producer Durables, Health Care, Consumer Discretionary, Financial Services and Technology are first equally weighted and then the stocks within each sector are equal-weighted. Reference: Russell 1000 Equal Weight Index:
Equal weighting refined
The trouble with these equal-weighted indices is the higher downside risk. When the going is good, they may outperform a market-cap based index but when things go south, they fall harder. See for example this screenshot from Invesco Russell 1000 Equal Weight ETF fact sheet.
Now, the Russell 1000 Equal Weight (EW) Technology Index is a sectorial equal-weighted index. This is a two-fold risk. Even market-cap-weighted sectorial funds are riskier than the market (defined as market-cap-weighted diversified index). This is an equal-weighted sectorial index. Meaning in the case of a downturn, the fall could be significantly more.
This is the market cap history of the underlying fund. It is a multi-cap sectoral fund!
This is a screenshot of the fund’s Jan 2020 factsheet.
Summary: Investors wanting “some exposure” to US-based technology stocks are better off with a fund like ICICI Prudential US Bluechip Equity Fund. It is reasonable to expect the Edelweiss US Technology Equity Fund of Fund to be significantly riskier during market downturns than the S&P 500. It is best avoided.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
Use our Robo-advisory Tool to create a complete financial plan! More than 3,000 investors and advisors use this! Use the discount code robo25 for 20% off. Plan your retirement (early, normal, before, and after), plus non-recurring financial goals (such as child education) and recurring financial goals (such as holidays and appliance purchases). The tool helps anyone aged 18 to 80 plan for retirement, plus six non-recurring and four recurring financial goals, with a detailed cash flow summary.
🔥Join our community of 9000+ users! 🔥Avail massive discounts on our courses + freefincal investor circle!
Track your mutual funds and stock investments with our Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds, ETF screeners, as well as momentum and low-volatility stock screeners.
You can follow our articles on Google News
We have over 1,000 videos on YouTube!
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth!
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalised investment advice. We can write a detailed article without mentioning your name if you have a generic question.
About The Author
Dr M. Pattabiraman (PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over 14 years of experience publishing news analysis, research and financial product development.
Connect with him via Twitter(X) LinkedIn YouTube
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,500 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market conditions! Watch the first lecture for free! One-time payment! No recurring fees! Lifelong access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Increase your income by getting people to pay for your skills! More than 900 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner seeking more clients through online visibility, or a salaried individual looking for side or passive income, we will show you how to do it by showcasing your skills and building a community that trusts and pays you. (Watch the 1st lecture for free). One-time payment! No recurring fees! Lifelong access to videos!
Our book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting a side income via content writing. It is available at a 50% discount for Rs. 500 only!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy
Freefincal is a News Media organisation dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact Information: To get in touch, please use our contact form. (Sponsored posts or paid collaborations will not be entertained.)Connect with us on social media
Our publications
You Can Be Rich Too with Goal-Based Investing
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
Your Ultimate Guide to Travel
