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Central Public Sector Enterprises (CPSE) exchange- traded fund (ETF)

 

With its portfolio concentrated in select stocks and sectors, it will be risky for retail individuals

 

With the listing of the Goldman Sachs Mutual Fund – Central Public Sector Enterprises (CPSE) exchange- traded fund (ETF) –retail investors who did not get a chance to participate in the new fund offering can do so by buying or selling at the exchanges. And the initial performance has been quite good. On the first day of trade, the fund rose 10.88 per cent against its issue price (₹ 17.45). As on April 9, in less than a week, it has returned 13 per cent. The CPSE ETF basket consists of shares of 10 big public sector units ( PSUs) — Oil & Natural Gas Corp (ONGC), GAIL India, Coal India, Indian Oil, Oil India, Power Finance Corporation ( PFC), Rural Electrification Corporation (REC), Container Corp, Engineers India and Bharat Electronics.

This is a great way to add some PSU flavour to your portfolio if you don't have any. Its a good idea to invest in CPSE ETF even now. It has good PSU stocks. If there is a stable government at the Centre, then there will be good appreciation in these stocks. Plus, PSU stocks give high dividend yield. The stocks included in CPSE have price- to- earning (PE) ratios lower than the markets. While Sensex PE stands at 18.58, ONGC PE stands at 12.04, REC PE 6.44, GAIL India PE 11.33 and so on. Then, Goldman Sachs has appointed market makers to ensure liquidity in the counter. Otherwise, ETFs aren't liquid products.

However, some others beg to differ. Reason: The index has higher exposure to only 10 stocks and few sectors. This makes it a concentrated index. ONGC has the highest weightage of 27.6 per cent in the index, followed by GAIL India. Nearly 60 per cent of the index comprises of energy companies.

The portfolio is highly skewed towards energy, oil & gas sectors —stocks that the government wants to divest — making CPSE ETF a risky bet for retail customers. Most won't understand the dynamics of how these sectors function and hence will never be able to take advantage of it.

Despite being inexpensive, these stocks can prove to be volatile because they are policy- heavy and cyclical stocks. A diversified index/ fund would be ideal to invest for individuals. According to Value Research, equity diversified funds have returned 24 per cent in the last one year ( as on April 9). The CPSE ETF does not have any representation from defensives. And now even the five per cent discount to the market price won't be available for retail investors. If you didn't buy the units less than a month back, there is no reason for you to buy now, say experts, because there has been no change in the markets.

As these companies are government controlled, political considerations can often override companies' interests. There are other PSU schemes. Their investment strategy is more diversified and actively managed. SBI PSU Fund returned 5.65 per cent in the past year and Religare Invesco PSU Equity returned 6.86 percent. If you still insist on investing, take the systematic investment route. And ensure you can stomach sectoral risks. You should cap your exposure in these funds to 10 per cent.

The quantum of dividend shall be Rs 0.0389 per unit. The record date has been fixed as April 03, 2014.

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

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