CPSE ETF offers 65% returns in one year. Should you invest?

CPSE ETF, which invests in the shares of government-owned companies, has been doing very well lately. The scheme has offered 64.48% returns in the last one year, 16.86% in six months and 13.97% in three months. Financial planners attribute the impressive performance to the rally in PSU stocks. CPSE ETF was launched in 2014 and has given a return of 8.30% since inception.

The portfolio of the scheme is highly inclined towards energy stocks. Energy sector has also been seeing an uptick of late. This is also contributing to the performance of the ETF. Experts also believe that the uncertain geo-political scenario is also making certain segments of the market do well. That in-turn is helping the CPSE ETF.

"CPSE ETF consists of resource companies or asset owners. In a world where supply side is a far bigger constraint, the earnings prospects of these stocks are improving from near to medium term perspective. If one looks into details most of these stocks were badly beaten down due to ESG concerns. Defense, energy, power generation and distribution and so on. Now World is more bothered about availability of basic factors of production on deficient supply concerns. While supply shortages were there earlier as well the advent of Ukraine/Russia War has given a shot in the arm to all anti ESG plays. These stocks are in general very cheap, value oriented stocks and institutional ownership is also low. Therefore, these stocks are getting related as clustering of positive, namely earnings upgrades, anti ESG sentiments and under ownership likely leading to valuations rerating of these stocks in the very near term," says Ashutosh Bhargava, Fund Manager and Head Equity Research, Nippon India Mutual Fund.


PSU stocks do not hold a very good reputation in the market. Mostly because of the processes and track record of the companies run partially or fully by the government. Mutual fund advisors believe that even though PSU companies are doing well now, their past track record is a little problematic. That is why they don’t advise in their favor. The scheme has seen some very bad times like between 25-Mar-2019 - 24-Mar-2020, the scheme returns fell by 46.35%.

“The CPSE ETF is basically a thematic fund that invests in PSU companies where the returns over a long term have not been very encouraging. It could be better to invest in an equity diversified fund instead of a portfolio of all PSU companies. The portfolio of CPSE ETF is too concentrated and that can have a negative impact in bad phases. It has done well in the near term but over a longer period it has underperformed compared to Nifty Index,” says Harshad Chetanwala, founder, My Wealth Growth, a wealth management company based in Mumbai.