HDFC Developed World Indexes Fund of Fund Review

Published: September 17, 2021 at 8:36 am

Last Updated on December 29, 2021

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.

Get free money management solutions delivered to your mailbox! Subscribe to get posts via email!

    🔥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.

    Ten-year rolling returns of MSCI World Index TRI compared with the S and P 500 TRI
    Ten-year rolling returns of MSCI World Index TRI compared with the S and P 500 TRI.

    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.

    Do share this article with your friends using the buttons below.

    🔥Enjoy massive discounts on our courses and robo-advisory tool! 🔥
    Use our Robo-advisory Excel Tool for a start-to-finish financial plan! More than 1000 investors and advisors use this!
    New Tool! => Track your mutual funds and stocks investments with this Google Sheet!
    • Follow us on Google News.
    • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
    • Join our YouTube Community and explore more than 1000 videos!
    • Have a question? Subscribe to our newsletter with this form.
    • 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.

    Get free money management solutions delivered to your mailbox! Subscribe to get posts via email!

      Explore the site! Search among our 2000+ articles for information and insight!

      About The Author

      Pattabiraman editor freefincalDr 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 nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or 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 3000 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 what 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 you 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!
      Both boy and girl version covers of Chinchu gets a superpower
      Both boy and girl version covers of Chinchu gets a superpower.
      Most investor problems can be traced to a lack of informed decision-making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
      Feedback from a young reader after reading Chinchu gets a Superpower (small version)
      Feedback from a young reader after reading Chinchu gets a Superpower!
      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 for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
      Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or you buy the new 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 from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only 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
      Our publications

      You Can Be Rich Too with Goal-Based Investing

      You can be rich too with goal based investingPublished 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 Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis 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

      Travel-Training-Kit-Cover-new This is an in-depth dive analysis 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)