Bharat 22 ETF makes a come back; tops the return charts in one year The scheme has underperformed its benchmark continuously from 2017- 2020 before finally picking up in the last one year
After being the worst performer among the equity mutual fund categories in 2020, Bharat 22 ETF is topping the return charts in one year with 14.46% returns. The scheme has performed better than all the large cap funds in the industry. This is the fund’s best performance till date since it was launched in 2017. The major reason for this turn around is supposed to be the recovery in PSU stocks.Bharat 22 ETF is an open-ended exchange traded fund investing in 22 companies, including three private sector stocks and 19 public sector units (PSUs) listed in the S&P BSE Bharat 22 Index. The scheme was launched by the Government of India to fulfill its disinvestment target in PSUs. The scheme has underperformed its benchmark continuously from 2017- 2020 before finally picking up in the last one year.
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Source: ETMutualFunds (Blue bar- fund; red bar-benchmark)
The scheme has offered -4.79% returns in 2018, -3.81% in 2019, -7.98% in 2020 and 40% returns in 2021. On a trailing return basis, the scheme is now the topper in the one year period and has considerably recovered the three year performance. Here’s a look at the trailing returns:
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Source: ETMutualFunds
According to the fund manager and financial advisors, the Bharat 22 ETF managed by ICICI Prudential MF, invests across six sectors including Industrials, Finance, Utilities, Energy, FMCG and Basic Materials. Most of these PSU names were available at cheap valuations before 2021.
“Most of the PSU stocks in Bharat 22 ETF were geared towards the domestic recovery cycle, which played out over the past year as a result of which the portfolio constituents gained significantly. The Indian equity market witnessed a very narrow rally between 2018 to 2020. Post the pandemic, as the economy opened up and the market rallied, the underlying constituents of Bharat 22 did very well. Most of the names in the portfolio are significant players in their respective sector and are some of the best companies with high future growth potential,” says Chintan Haria, Head Product & Strategy, ICICI Prudential Mutual Fund.
Financial planners believe that PSU stocks that make a huge part of Bharat 22 ETF might see a good time in the near to medium term with some volatility. Hence, the scheme can continue to do well. However, they point out that the scheme is too PSU heavy for a diversified retail portfolio and hence should be looked at as a tactical bet.
“PSU stocks have been underperforming majorly not in the last 2-3 years but 10 years before that as well. That is majorly because PSU companies had major governance issues. Now that some of those issues are resolved, the stocks are doing well. We have to understand that the issues are not totally off the table and the lull period in such funds can be long. PSU funds had given negative returns for years before this recovery happened. Hence I believe that those who want to take a 1-2 year tactical bet on PSU stocks can look at this fund, but for retail, long-term investors, I would suggest a diversified equity fund,” says P Chokkalingam, Director, Prakala Wealth, a financial planning firm based in Chennai.
This story originally appeared on: India Times - Author:Tax Cognition
