CPSE-ETF and Bharat 22 ETFs yield negative returns over last one year

Poor returns by both the ETFs could also impact returns of the Employees’ Provident Fund Organisation (EPFO), which has investments in both the schemes.

Investments made in Central Public Sector Enterprise-Exchange Traded Funds (CPSE-ETFs) and Bharat 22 ETF have yielded negative returns over the last one year. To meet its disinvestment target, the government had launched such ETFs. However, in the last one year, CPSE-ETFs have given negative returns of 23.30%, while Bharat 22 ETF is down by 21.48% over the same period, according to data from Value Research.

Poor returns by both the ETFs could also impact returns of the Employees’ Provident Fund Organisation (EPFO), which has investments in both the schemes. EPFO has been investing in the stock market through ETFs since 2015. According to the current investment pattern, EPFO invests 15% of its annual incremental receipts in equity, the rest in debt. So, EPFO invests in ETFs based on Nifty 50, Sensex, CPSE and Bharat 22 Indices. EPFO does not invest in shares and equities of individual companies. The total amount invested by EPFO in ETFs, as in September 2019, is Rs 86,966 crore.

Market participants were of the opinion that poor returns from CPSE-ETFs and Bharat 22 ETFs were due to the weak performance of several public sector undertakings in the last few years. Stocks such as Power Grid Corporation, NTPC, ONGC, Coal India, ITC and Larsen & Toubro, which are part of CPSE, and Bharat ETFs have given negative returns in the last one year and three years, respectively. In the last one year, the ONGC stock is down by 40.20%. Coal India has given negative returns of 33.53% in the last one year and 47.85% in the last three years.

Kaustubh Belapurkar, director of Fund Research, Morningstar Investment Adviser India, said, “Both the schemes invest in PSU stocks and they have been through turmoil in the last few years and stock prices have remain depressed. Even the rally in the equity markets have been driven certain stocks and sectors. So, it becomes even more polarised when we look at the PSU counter—which has been laggards.” The Value Research data also showed that CPSE-ETFs have given negative returns of 13.49% in the last three years.

However, returns of Sensex and Nifty ETFs have been better compared to CPSE- and Bharat 22 ETFs. EPFO also invests in Nifty and Sensex ETFs of SBI Mutual Fund and UTI Mutual Fund. The Value Research data showed that SBI ETF Sensex has given the returns of 4.92% compared to the category average of 3.83% in the last one year. The returns for five years and seven years have been over 10%. In the last one year, the Sensex has gained by just 4.38%.