Investing in ICICI Prudential's Nasdaq 100 Index Fund New Fund Offer (NFO)? A question on your mind? Let's consider the implications.
The pandemic has led to a surge in online activities, benefiting FAANG companies and other tech giants, which are among the top constituents of the Nasdaq index. For those looking to gain exposure to the US equity market but seeking better diversification, investing in a fund based on a broader index such as the S&P 500 might be a wiser choice. However, for investors with a high risk tolerance and a long-term investment horizon aiming to capitalize on the tech sector's growth, the ICICI Prudential Nasdaq 100 Index Fund could be an appealing option.
The ICICI Prudential Nasdaq 100 Fund aims to replicate the Nasdaq 100 Index's performance before expenses. This index is technology-heavy due to the exclusion of financial biggies and is concentrated towards technology companies, with the top three companies accounting for 30% of the portfolio. The fund's focus on large-cap US technology stocks has resulted in strong historical performance, with approximately 31.4% annualized returns over 3 years and 24.3% over 5 years.
However, this fund carries a very high risk profile due to the index's tech-heavy portfolio, leading to higher volatility and sensitivity to tech market cycles compared to more diversified funds. The allocation to the top 10 holdings in the Nasdaq 100 Index is around 53.38%, with top holdings including Apple, Microsoft, Amazon, Alphabet (Class C), Facebook, Tesla, Alphabet (Class A), NVIDIA Corp, Paypal, and Adobe.
The ICICI Prudential Nasdaq 100 Fund is a passively managed scheme with a moderate expense ratio of 1.07%. It has a large asset under management (AUM) of around Rs 1,833.24 crore, suggesting good liquidity and investor adoption. The Sharpe ratio of 12.37 (likely scaled) indicates a favorable risk-adjusted return relative to peers. However, note that the beta is reported as 0.00, likely because it is benchmarked to the Nasdaq-100 and designed as an index fund.
The run-up in technology companies, especially during the pandemic, has supported the performance of the Nasdaq 100 post-2019. If you had invested Rs 100 in the Nasdaq 100 index in 2010, the value of the same would be Rs 1,494 now, compared to Rs 379 invested in the NIFTY 50 index.
For those seeking a tech-heavy portfolio but preferring international diversification, there are funds like the ICICI Prudential Global Advantage Fund-of-Fund and PGIM India Global Equity Opportunities Fund that invest in mutual fund schemes across international markets, not just in the US.
The new fund offer for the ICICI Prudential Nasdaq 100 Fund will close for subscription on 11 October. Before making an investment decision, it is crucial to carefully consider your risk tolerance and investment objectives.
- The ICICI Prudential Nasdaq 100 Fund, which aims to replicate the Nasdaq 100 Index's performance, is heavily focused on technology companies, making it a suitable option for investors with a high risk tolerance and a long-term investment horizon who aim to capitalize on the tech sector's growth, as it has demonstrated strong historical performance.
- For investors who are seeking international diversification in a tech-heavy portfolio, there are funds available such as the ICICI Prudential Global Advantage Fund-of-Fund and PGIM India Global Equity Opportunities Fund, which invest in mutual fund schemes across international markets, not just in the US.
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