The CPSE ETF was launched with the intent of giving retail investors exposure to the government’s ‘Maharatna’ and ‘Miniratna’ companies. These were supposed to highly performing PSUs. However, the performance of the ETF does not suggest this. The ETF has one-year trailing returns of -6.48%, and three-year returns of just 2.84%. If you go back to return since its inception, four years ago, the return goes to 8%, little more than what bank FD or PPF would have given. The benchmark Nifty 50 Index is up 13.16% over the past year and has delivered 9.62% over the past three years. Its return since 28th March 2014, is 13.5%.
|Period||CPSE ETF (% CAGR)||Nifty 50 (% CAGR)|
|Since ETF Inception*||8||13.5|
*28th March 2014, Source: Value Research
The CPSE ETF tracks a specially constructed index, the Nifty CPSE Index. It comprises of just 10 stocks – ONGC, Coal India, IOC, GAIL, CCI, Bharat Electronics, REC, Oil India and Engineers India. It is heavily dominated by energy stocks with ONGC accounting for 24.75%, Coal India 18.04% and IOC for 16.84%. This may explain some of the poor performance of the ETF in recent months. However, the real explanation for its long-term lacklustre performance rests in its ownership. Government companies are not known to be dynamic and wealth creating.
You may be wondering about how its more recent counterpart Bharat 22 has performed. Bharat 22 was launched on November 17th, 2017. It contains a mix of PSUs and private sector companies. However, the mix was not created by some thematic process or stock selection methodology. The public-private mix was simply the result of the government’s desire to sell off its holdings in SUUTI (Specified Undertaking of the Unit Trust of India), created as a result of a default in the erstwhile UTI (not the current UTI Mutual Fund). SUUTI also included stocks of some private sector companies such as ITC and L&T. The return since inception of Bharat 22 is -4.94%. That’s right, you would be sitting on a loss of about 5%.