Kotak Global Innovation Fund of Fund Review

Published on / By M. Pattabiraman Twitter: @pattufreefincal

Published: July 21, 2021 at 8:10 am

Last Updated on June 12, 2022 at 9:41 am

Kotak Global Innovation Fund of Fund is an open-ended fund of fund investing in Wellington Global Innovation Fund (or any other similar overseas mutual fund schemes/ETFs). The fund of fund is currently in its NFO period (closing 22n July 2021).

The scheme mandate of the underlying fund – Wellington Global Innovation Fund – seeks long-term capital appreciation by investing in companies that the fund manager believes are driving or benefiting from innovation and structural growth trends and will have significant market opportunities over a long-term time horizon.

The underlying fund (as usual domiciled in Luxembourg!) was started in Feb 2017 and now has an AUM of 423.6 M. It has an expense ratio of 0.75%, on top of which Kotak Global Innovation Fund of Fund will charge extra. According to the AMC fund page, the regular plan TER is expected to be 2.25%.

The MSCI ACWI Index is the benchmark. It represents large and mid cap stocks across 23 Developed Markets and 27 Emerging Markets countries.  The top ten holdings of the fund are shown below.

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CompanyCountryIndustry% of Equity
AmazonUnited StatesRetailing5.3
AlphabetUnited StatesMedia & Entertainment5.1
FacebookUnited StatesMedia & Entertainment4.2
AstraZenecaUnited KingdomPharma, Biotech & Life Sciences4
VisaUnited StatesSoftware & Services4
PrologisUnited StatesReal Estate3.4
UnitedHealthUnited StatesHealth Care Equipment & Services3.1
Chipotle Mexican GrillUnited StatesConsumer Services3
Walt DisneyUnited StatesMedia & Entertainment2.7
AptivUnited StatesAutomobiles & Components2.7

A good 76.8% of the portfolio is north American stocks, 11.2% in emerging markets, and 1.2%^ in European stocks. Wellington Global Innovation Fund has done fairly well in its short history, but much of its outperformance has come after the 2020 market crash.

Since inception NAV growth of Wellington Global Innovation Fund the underlying fund of Kotak Global Innovation Fund of Fund compared with MSCI ACWI Standard (Large+Mid Cap) USD Gross
Since inception NAV growth of Wellington Global Innovation Fund, the underlying fund of Kotak Global Innovation Fund of Fund compared with MSCI ACWI Standard (Large+Mid Cap) USD Gross.

This can be seen from one-year and two-year rolling returns. Before the March 2020 crash, the fund has seen periods of lacklustre performance.

One Year rolling returns of Wellington Global Innovation Fund vs MSCI ACWI Gross vs S and P 500 Total Return
One Year rolling returns of Wellington Global Innovation Fund vs MSCI ACWI Gross vs S and P 500 Total Return
Two Year rolling returns of Wellington Global Innovation Fund vs MSCI ACWI Gross vs S and P 500 Total Return
Two Year rolling returns of Wellington Global Innovation Fund vs MSCI ACWI Gross vs S and P 500 Total Return

Thus it is too early to judge if this outperformance will last. From our experience (links below), consistent outperformance of such an active fund will be quite a surprise. And if we account for the TER to be charged by Kotak MF, the returns will be diluted further. Therefore we recommend that investors avoid Kotak Global Innovation Fund of Fund.

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/international market (without the concentration risk and volatility of the Nasdaq 100 ETF or FOF from the same AMC).

Check out our previous reviews of international funds: