India's first actively managed ETF

Motilal Oswal (MO) one of the larger stockbrokers in India is launching its first structured product the MOSt Shares M50, which is an actively managed exchange traded fund (ETF). ETFs as an investment vehicle are pretty old school in the US where over USD 600 billion are tucked into them.

In India, ETFs are relatively unknown and most of the ETFs have been passive index funds tracking the Sensex or Nifty. Benchmark has been the 800 lb gorilla in the Indian ETF space with their Nifty BeES which tracks the Nifty index. The MOSt Shares M50 is one of the first actively managed ETFs in India. Which means that a fund manager, Rajnish Rastogi, is actively managing the money and can tweak the investment model in real time. According to Rastogi’s LinkedIn profile he “developed the first (worldwide) fundamentally enhanced index and obtained regulatory approval to manage an Exchange Traded Fund (ETF) that tracks it.” If you are looking for more details about the ETF you can visit their site and download the mind numbing PDFs.

For me what is interesting is seeing the ETF space grow in India. ETFs typically have a lower cost (known as expense ratio in the biz) and can be traded via your local stockbroker. When people ask for investing advice, I give them my 3 stage process:

1. Absolute beginner – get an ETF or mutual fund that tracks the index (Benchmark Nifty BeES is an example)
2. Intermediate – broadly invest in ETFs or mutual funds (for example: Reliance Growth Fund or MOSt Shares M50)
3. Expert or gambler – invest directly into the stock market by picking the stocks yourself

I will be tracking the MOSt Shares M50 to see how it outperforms against the Nifty. According to them, they will pick the same stocks in the Nifty 50 index but “remix” the index. Would I recommend this product? Potentially, but I need to see how the ETF stacks up against the index and more importantly does the ETF have enough daily trading liquidity.

For more information on how ETFs got started checkout Wikipedia.

2 thoughts on “India's first actively managed ETF

  1. JB says:

    “developed the first (worldwide) fundamentally enhanced index and obtained regulatory approval to manage an Exchange Traded Fund (ETF) that tracks it.”I'm suspicious about that claim – his fundamentally weighted index debuted in Nov 2007. Fundamental indexing (worldwide) has been around for longer. Arnott's RAFI 1000 has been around since atleast 2005.Not that its a big deal either way because of my next point. Secondly, fundamentally weighted indexing is nothing but re-packaging a value-oriented strategy. Naming it an index doesn't really matter one way or another. The correlations of fundamentally weighted strategies have been shown to be close to value oriented strategies. So, I would imagine that this ETF would perform similar to a value oriented MF that limits its universe of stocks to the Nifty 50. And, it would underperform growth strategies when growth does well (as compared to value).The only new thing here is that this strategy now is available in ETF form which is good (now, if only we can get rid of STT). As far as I can make out, its expense ratio will be around 1% – that's a bit steep compared to value based ETFs in the US (IVE which is the S&P 500 Value Index ETF in the US has an expense ratio of 0.2%) but compared to Indian MFs its not too bad. http://www.accumulatingmoney.com/fundamental-in

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