The popularity of international funds is growing as more and more people are looking to diversify their portfolios internationally. ICICI Prudential Mutual Fund has come out with yet another offering to add to the vast bouquet of international schemes. The AMC has launched an open-ended index fund, ICICI Prudential NASDAQ 100 index fund that will mimic the Nasdaq 100 Index.
In this blog, we tell you all about the fund and also look at whether you should invest in the ICICI Prudential NASDAQ 100 index fund or not?
What is the ICICI Prudential Nasdaq 100 fund?
ICICI Prudential Nasdaq 100 Fund is an index fund that will invest in the US equity market index, Nasdaq 100.
As an index fund, it will be a passively managed scheme where the fund manager will invest in the companies in the same proportion as that of the index. The ICICI Prudential Nasdaq 100 fund will try to replicate the index’s performance before expenses. The new fund offer will close for subscription on 11 October.
Let’s understand if the ICICI Prudential Nasdaq 100 index fund makes sense for an investor looking for international diversification to invest in this scheme.
Nasdaq 100 Index: What do you get?
To understand the kind of companies the fund will invest in, we need to understand the index’s composition.
Nasdaq 100 comprises the 100 largest global non-financial companies listed on the US stock exchange. The US is home to the world’s biggest financial and tech companies. The exclusion of the financial biggies makes the index technology-heavy. Companies such as Apple, Microsoft, Alphabet, and Facebook feature in the index’s top holdings. Technology companies, in total, account for 44% of the index. The allocation to the top 10 holdings is around 53.38%
The following tables show the top holdings and sector composition of the index:
| Top 10 Holdings | |
| Company | % Allocation |
| Apple | 11.35 |
| Microsoft | 10.15 |
| Amazon | 7.66 |
| Alphabet (Class C) | 4.18 |
| 4.05 | |
| Tesla | 3.87 |
| Alphabet (Class A) | 3.86 |
| NVIDIA Corp | 3.82 |
| Paypal | 2.29 |
| Adobe | 2.15 |
| Top 5 Sectors | % Allocation |
| Information Technology | 44 |
| Communication Services | 29 |
| Consumer Discretionary | 15 |
| Consumer Services | 3 |
| Industrials | 2 |
Performance Of Nasdaq 100 Index
The Nasdaq 100 index has done well in recent years when compared to Indian equity markets. Nasdaq 100 TRI index has delivered a CAGR of 34.6% over the past 5 years, while the NIFTY 50 TRI index has delivered a CAGR of 18.8%. The run-up in technology companies, especially during the pandemic, has supported the performance of the Nasdaq 100 post-2019.
The pandemic has changed the way people live, work, and shop. People are spending more time online. They are shopping more online, working remotely online, and spending more time online for entertainment. This has benefited the FAANG (Facebook, Alphabet, Amazon, Netflix, and Apple) companies that are among the top constituents of the Nasdaq index.
The following graph shows how the Nasdaq 100 has outperformed the NIFTY 50 over the long term. If you had invested Rs 100 in the Nasdaq 100 index in 2010, the value of the same would be Rs 1,494 now as compared to Rs 379 invested in the NIFTY 50 index.
Should You Use ICICI Prudential NASDAQ 100 index Fund for International Exposure?
As shown in the table above, the Nasdaq 100 index is concentrated towards technology companies. The top three companies in the index account for 30% of the portfolio. The allocation is slightly on the higher side. It is essential to understand that a portfolio concentrated towards a few sectors and stocks may deliver higher returns during rising markets but is also likely to hit harder during market corrections. As the Nasdaq 100 index has a tech-heavy portfolio, its performance will be dependent on the technology stocks.
If you want to have a tech-heavy portfolio and don’t mind the risk, you may consider investing in an ICICI Prudential NASDAQ 100 index fund. As it is an index fund, you will also benefit from the low expense ratio. Index funds are passively managed; therefore, the expense ratio is lower than an actively managed fund plus generally the risk is lower.
However, if you are looking for exposure to the US equity market but don’t want to take too much risk, you will be better off investing in a fund based on a broader index such as S&P 500. It will help you achieve better diversification.
The S&P 500 index tracks the largest 500 companies listed on the US stock exchange. As the number of holdings is much higher, the allocation to top holdings and top sectors is much lower than the Nasdaq 100 index, thus providing better diversification. Information Technology, the top sector S&P 500, has a weightage of just 28% compared to 44% in the Nasdaq 100.
However, if you are looking to diversify beyond US equity markets, there are international funds that are not focused on one country. There are funds such as — ICICI Prudential Global Advantage Fund-of-Fund and PGIM India Global Equity Opportunities Fund– which invest in mutual fund schemes across the international markets and not just in the US.
