Last Updated on December 29, 2021 at 6:24 pm
HDFC Developed World Indexes Fund of Fund is an open-ended fund of funds scheme investing in units/shares of overseas Index Funds and/or ETFs, which will, in aggregate, track the MSCI World Index. The fund is currently in its NFO stage. In this review, we shall discuss HDFC MF’s plan to invest in a basket of ETFs to try and provide a “return that closely corresponds to the performance of the MSCI World Index, subject to tracking errors, over the long term” and if makes sense to invest in NFO or put it in our watchlist.
What is the MSCI World Index? The MSCI World Index captures large and mid cap representation across 23 Developed Markets (DM) countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the UK and the US.
The index has 1,557 constituents and covers approximately 85% of the free float-adjusted market capitalization in each country. According to the latest fact sheet, the top ten stocks are:
- Apple 4.23% info tech
- Microsoft corp 3.59% info tech
- Amazon.Com 2.47% cons discr
- Facebook a 1.51% comm srvcs
- Alphabet a 1.44% comm srvcs
- Alphabet c 1.42% comm srvcs
- Tesla 0.94% cons discr
- Nvidia 0.92% info tech
- JPMorgan chase & co 0.81% financials
- Johnson & johnson 0.76% health care
If you are wondering why this resembles a US stock index, this is the geographic distribution.
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)
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
- United States 67.95%
- Japan 6.63%
- United Kingdom 4.11%
- France 3.31%
- Canada 3.2%
- Other 14.8%
At this point, if you are wondering if the MSCI World index is going to be this US-heavy, why can’t I just the S&P 500 directly? It is a perfectly rational line of thinking as we shall below.
Where will the HDFC Developed World Indexes Fund of Fund invest?
According to the fund presentation document, the fund of fund will invest in the following ETF and index funds.
- CSIF (IE) MSCI USA Blue UCITS ETF 67.6% Benchmark: MSCI USA Index
- CSIF (Lux) Equity Europe (index fund) 19.1%. Benchmark: MSCI Europe Index
- CSIF (Lux) Equity Japan (index fund) 6.6% Benchmark: MSCI Japan Index
- CSIF (Lux) Equity Pacific Ex Japan (index fund) 3.3%. Benchmark: MSCI Pacific ex Japan Index
- CSIF (Lux) Equity Canada (index fund) 3.3%. Benchmark: MSCI Canada Index
The aggregate performance of this basket is expected to follow the MSCI World Index. The US ETF is domiciled in Ireland – AMC says this is because the withholding tax on dividends is only 12.5% in Ireland instead of the usual 25%. The index funds are domiciled in Luxembourg.
To say the very least, this constitution is bizarre. If the aim was to provide a return close to the MSCI World index and reduce the withholding tax on US stock dividends, HDFC AMC could have chosen an ETF or index track fund directly tracking the MSCI World Index domiciled in Ireland! There are nine such ETFs listed here: MSCI World ETFs.
Building a fund of fund that will invest in four passive funds, each with a different benchmark, domiciles in two locations but overall tracking another benchmark is baffling.
MSCI World Index vs S&P 500
The next question to ask is, what is so special about investing in 23 developed markets? I can understand if the index has got more or less equal weightage among all developed regions. We can claim true international diversification even if it does not result in returns.
That is clearly not the case. Also, the way the world order is structured right now, at least the top few stocks of the S&P 500 have a truly international presence. So am I going to get anything extra if I choose HDFC Developed World Indexes Fund of Fund instead of the Motilal Oswal S& P 500 Index fund or the Mirae Asset S&P 500 Top 50 ETF or FOF (click the links to read reviews)?
These are the ten-year rolling returns of MSCI World Index TRI (aka Gross total return) compared with the S&P 500 TRI. Both indices are in USD.
Even if we account for dividend withholding tax – the full amount for the S&P 500 and half for the MSCI World index fund when invested via HDFC Developed World Indexes Fund of Fund – there is not much difference in returns between the two indices. The reason is likely to be US dominance in the MSCI World index.
So there is nothing extraordinary about the HDFC Developed World Indexes Fund of Fund. Its setup is both messy and unnecessary. We recommend investors avoid it, at least for the time being. The tracking error of this fund of fund would be of interest after it turns one year old. We had recently published that the Tracking errors of MO S&P 500 Index fund, MO Nasdaq 100 ETF and FoF are quite huge. Let us see how this HDFC fund and another new offer, Mirae Asset S&P 500 Top 50 ETF and FOF, fare in comparison. One can then take a call on this HDFC fund.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 7000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 2,500 investors and advisors use this!
Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- 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 personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
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)
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 ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 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 condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 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 who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new 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 side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization 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: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)