ICICI Prudential Nifty Oil & Gas ETF: A Worthwhile Proposition?

ICICI Prudential Mutual Fund has come up with India’s first Oil & Gas ETF tracking the Nifty Oil & Gas Total Return Index. The New Fund Offer period is from July 8 to July 18, 2024.

The ICICI Prudential Nifty Oil & Gas ETF, an open-ended scheme, will invest 95%-100% of its assets in equity and equity-related securities of companies constituting the underlying index, i.e. the Nifty Oil & Gas Index.

Up to 5% of its net assets may be invested in money market instruments, including TREPs (Treasury bill Repurchase) or similar instruments as may be permitted by SEBI/RBI from time to time, subject to requisite approvals.

What is the Investment Objective?

The investment objective of ICICI Prudential Nifty Oil & Gas ETF (an open-ended scheme) is to provide returns before expenses that correspond to the total return of the underlying index subject to tracking errors. However, there can be no assurance or guarantee that the investment objective of the Scheme would be achieved.

What is the Investment Strategy?

Being an ETF, the Scheme will follow a passive investment strategy. The corpus of the Scheme will be invested in stocks constituting the underlying index in the same proportion as in the Index and endeavour to track the benchmark index. Only a small portion (up to 5% of the net assets) may be invested in money market instruments to meet the liquidity and expense requirements.

The performance of the Scheme may not necessarily be commensurate with the performance of the underlying index on any given day or over any given period. Such variations are commonly referred to as the tracking error.

That said the Scheme intends to keep the tracking error low by closely aligning the portfolio in line with the index. In the case of tracking error, the Scheme will endeavour to reallocate its portfolio, but the available investment/ disinvestment opportunities may not permit precise mirroring of the underlying index immediately. The portfolio shall be rebalanced within 7 calendar days to ensure adherence to the asset allocation norms of the Scheme.

Similarly, in the event of a constituent stock being demerged/merged /delisted from the exchange or due to a major corporate action in a constituent stock, the Scheme may reallocate the portfolio and seek to minimize the variation from the index. In such events, it may be more prudent for the fund to take exposure through derivatives of the index itself or its constituent stocks in order to minimize the long-term tracking error.

ICICI Prudential Nifty Oil & Gas ETF will be benchmarked against the Nifty Oil & Gas Total Return Index.

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Here’s what Chintan Haria, Principal - Investment Strategy, ICICI Prudential AMC, said at the fund launch,

ICICI Prudential Nifty Oil & Gas ETF is designed to provide investors with access to a sector that is pivotal to the economy and is currently undervalued. The oil and gas sector is the driving force of modern economic growth, and with growing demand and consumption, it presents a significant investment opportunity. Our ETF aims to allow investors to capitalise on the resurgence in global interest in this sector.

About the Nifty Oil & Gas Index

The Nifty Oil & Gas Index is designed to reflect the performance of the stocks belonging to the Oil, Gas and Petroleum industry. This index comprises a maximum of 15 stocks that are listed on the National Stock Exchange (NSE).

Table: Top Constituents of the Nifty Oil & Gas Index by Weightage

The Nifty Oil & Gas Index was launched on January 15, 2020, and since inception has delivered a price return of 13.8% CAGR and a total return (which includes dividends) of 16.3% CAGR.

Graph: Long-Term Performance of the Nifty Oil & Gas Index

Over the last one year, the Nifty Oil & Gas Index has clocked an impressive absolute return of 63.46% (TRI), proving to be a rewarding sector for investors.

Who Will Manage ICICI Prudential Nifty Oil & Gas ETF?

Mr. Nishit Patel and Ms. Priya Sridhar are the fund managers for this scheme.

Mr. Patel joined ICICI Prudential AMC in November 2028 and before that has worked with K.K. Dand & Co. He is a commerce graduate (B.Com) and a Chartered Accountant, and is currently managing various other passive schemes – index fund and ETFs – at the fund house.

Ms. Sridhar is the co-fund manager and dealer at ICICI Prudential AMC and has been with the fund house since February 2008. Before that, she worked with ITI Mutual Fund and LIC Housing Finance Ltd. She has a master’s degree in financial management (MFM) from Mumbai University and is currently co-managing various ETFs and index funds at ICICI Prudential Mutual Fund.

How much is the Minimum Investment in ICICI Prudential Nifty Oil & Gas ETF?

The minimum investment in the Scheme is Rs 100 and in multiple of Re 1/- during the NFO period.

Who Should Consider Investing?

Given the nature of the Scheme and its investment strategy, investors have concentrated exposure to the Nifty Oil & Gas Index. Thus, only investors with a high-risk appetite, wanting exposure to the oil & gas sector, and having a longer investment horizon may consider such an investment proposition.

Even if you have a high-risk appetite, it is suggested to have a very small exposure to the overall equity portfolio to this fund.

To know more about the ICICI Prudential Nifty Oil & Gas ETF read the Scheme Information Document and Key Information Memorandum.

Happy Investing!