Goldman Sachs CPSE ETF

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Goldman Sachs launches Central Public Sector Enterprises (CPSE) ETF, an open-ended scheme that consists of shares of 10 major public sector units, including Oil & Natural Gas Corporation, GAIL India and Coal India and it opens for subscription today with the government aiming to raise Rs 3,000 crore.

CPSE-ETF

About the scheme:

The scheme which is open till 21 March 2014, will mirror the returns of the CPSE index from the National Stock Exchange, which is currently at 1855. The CPSE index has ten stocks, chosen on three criteria — a 55 per cent Government holding, a 4 per cent dividend yield, seven-year dividend paying record and a free float market cap of  Rs.1,000 crore or more.

Pros and Cons:

  • Companies making up this fund have been selected for their dividend record in the last seven years, therefore, the fund is likely to receive steady cash flows from its holdings in the form of dividends. This will prop up its returns of the fund. 
  • There is a 5 percent discount for investing in the NFO and also you get a discount in the form of loyalty bonus wherein for every 15 units, you get one unit free after one year.
  • Investing in CPSE ETF is a low-cost route to investing in PSE stocks.

  • At the same time these stocks have had a good run and also some of the stocks are part of the Nifty Index. And any profit booking in Nifty will lead to a substantial correction in these stocks as well. 

Hence, investing in PSE ETF can be considered only if  you can actively track returns and book profits when the stocks run up. Since the ETF is to be listed on the National Stock Exchange, one can wait and watch the performance of the fund and consider investing at a later stage.

Historical BSE Sensex returns - updated 2014

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We have already seen the historical returns of the S&P BSE Sensex, which has given an average return of about 20%  per year, despite volatility and price fluctuations of about -20% to +60%. The following table shows S&P BSE Sensex historical data - start  & close values and the yearly returns of the sensex from 2000 to 2013.

sensex-returns-2014


As far as the other major  indices are concerned, CnxIT gained about 58%, whereas the BankNifty lost about 9% and the Cnx Midcap index lost about 5%. Despite the sensex gaining 9% for the year there were many stocks which have lost 95% and some stocks gaining about 10-200%, most of them from the Information and Technology sector.

During the year the index hit an all-time high of  24483 and despite markets hitting all time highs only a few stocks made all-time highs or the highs which were made in 2008 bull run,  while most of them are still languishing well below their historical highs. The message for retail investors is clear - index investing is better than individual stocks.  Individual or Retail investors can achieve above-average returns by investing in index through Exchange Traded Funds (ETFs) like Nifty Bees or Top mutual funds, which have given consistent returns over longer term.

Be a wise investor !