1Mutual Fund Category Analysis                                                               May 18, 2012 Category Analysi...
2Mutual Fund Category Analysis                                                                          contd…  Prologue: ...
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4Mutual Fund Category Analysis                               contd….    Schemes from Global Funds Category:Category Analys...
5Mutual Fund Category Analysis                                                                           contd….    By inv...
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7Mutual Fund Category Analysis                                                                            contd….    Perfo...
8Mutual Fund Category Analysis                                                                                            ...
9Mutual Fund Category Analysis                                                                                            ...
10Mutual Fund Category Analysis                                                                             contd….    2. ...
11Mutual Fund Category Analysis                                      contd….Risk and Return matrix on Global Agribusiness ...
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13Mutual Fund Category Analysis                                                                                           ...
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15Mutual Fund Category Analysis                                                                           contd….    3. Mi...
16Mutual Fund Category Analysis                                     contd… Performance of global commodity over decade:  C...
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Mutual Fund Category Analysis - Global Funds

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Mutual Fund Category Analysis - Global Funds

  1. 1. 1Mutual Fund Category Analysis May 18, 2012 Category Analysis: Global Funds Key takeaways: High risk appetite investors who wish to add geographical diversification on their portfolios can consider investing in the category with minimum investment horizon of two years or so. Top picks include ING Global Real Estate Fund, Birla SL International Equity - A, Principal Global Opportunities and AIG World Gold fund. Summary: Schemes in the global funds category have delivered mixed performance over the last one year period, as the schemes which focused on US, real estate and ASEAN equities outperformed while the schemes that invested in mining & commodities equities underperformed within the categories. Underperformance by the schemes is mainly attributed to waning risk appetite among investors across the world. Further, Eurozone issues, debt concerns in US and slower growth in Asia and the resulted consequences of uncertain demand for commodities impacted the performance of such schemes. Weakening of the Rupee Vs. US$ has not helped such funds. The currencies in countries where the schemes invest primarily, like Australia, Brazil and Indonesia, have also weakened in tandem with the Indian rupee. (Except for schemes that hold major portion of assets in the US stocks). Global funds involve higher expenses, as fund of funds have to bear double expenses. Notwithstanding the global diversification, most of global funds hold concentrated portfolios with constricted objectives based on theme, country specific, etc. Some of outperformers in the category are Motilal Oswal MoSt Shares NASDAQ-100 ETF, ING Global Real Estate Fund, Birla Sun Life International Equity - Plan A, JPMorgan JF ASEAN Equity Off-Shore and Principal Global Opportunities. Some of bottom performers are AIG World Gold, DSP BR World Gold, Birla Sun Life CEF - Global Precious Metals, DSP BR World Mining and Mirae Asset Global Commodity Stock. Global funds lose out on capital gain and DDT benefits as far as tax implication for Indian investors are concerned as they are treated like debt oriented funds.Category Analysis: Global Funds Retail Research
  2. 2. 2Mutual Fund Category Analysis contd… Prologue: There are 33 schemes in the Indian Mutual Fund Industry, coming under Global funds category, investing predominantly in overseas markets either directly or through fund of fund routes. The category is considered as good alternate asset class as they provide geographical diversification, offer an opportunity to take part in the world’s booming economies and growing stock markets. However, given the global uncertainty, investors can take a call on schemes that provide better geographical as well as market diversifications based on their risk profiles. Benefits of investing in Global funds: 1. Diversification: Investors can diversify their portfolio through geographical diversification in addition to domestic asset classes like equities, debt, commodities etc. 2. Stability: Global markets often perform in contrast as different countries go through different economic cycles. By having investments across countries and currencies, investors can ensure steady and stable returns on their investment. 3. Hedging: Investors who have future dollar expenses (for example, parents planning to send their children to US for higher education, importers having dollar commitments, etc.) can hedge against any future depreciation in the rupee vis-à-vis the US dollar by investing in such schemes. Risks of investing in Global funds: 1. Currency risk: is explained in the next slide. 2. Fund manager’s expertise: The performance of global funds depend on the expertise of fund managers in handling international funds as this involves not only economic forecast of different regions,commodities etc but also rupee-dollar and other currency equations. 3. Higher Cost: In case of FoF, expense fees and management costs are higher than normal MFs, as the cost structure will include the fees of the underlying mutual funds as well as the FoF. Expense ratio for these funds ranging from 0.42% to 2.50%. This excludes the expenses ratios of funds in which these funds invest. 4. Country-specific risks include political and economic instability in the country your investments are exposed to.Category Analysis: Global Funds Retail Research
  3. 3. 3Mutual Fund Category Analysis contd… Currency risk: As the investors broaden their investment universe by investing through global funds, they must also bear the risk associated with fluctuations in exchange rates. Fluctuations in these currency values, whether Rupee or USD or the currencies of the countries where the mutual funds invest, can either enhance or reduce the returns. To put in simple terms, if the rupee appreciates vis-à-vis the dollar, the returns from the scheme (that invests in US$ denominated assets) will be adversely affected and vice-versa. The present situation of depreciation in Indian Rupee Vs. US Dollar is not helpful for most of the global funds as the currencies of countries in which they invest have also depreciated Vs. US Dollar in tandem with the Indian rupee. The below chart portrays the movement of emerging market currencies of countries such as South Africa, Brazil, Mexico which are moving in line with the Indian Rupee. But, the global funds that invest in US equities or dollar denominated assets got benefited by the rupee depreciation. 130 USD / Mexican Peso 120 USD / Brazilian Real USD / Canadian Dollar 110 USD / South African Rand 100 USD / Chinese Yuan 90 2-Jun-11 2-Jul-11 2-Oct-11 2-Nov-11 2-Dec-11 2-Jan-12 2-Feb-12 2-Mar-12 2-May-12 2-Sep-11 2-Aug-11 2-Apr-12 USD / Indian RupeeCategory Analysis: Global Funds Retail Research
  4. 4. 4Mutual Fund Category Analysis contd…. Schemes from Global Funds Category:Category Analysis: Global Funds Retail Research
  5. 5. 5Mutual Fund Category Analysis contd…. By investing in global mutual funds, investment portfolios become further diversified because these funds get exposure to industries that may not be well represented in Indian market. There may also be times when the domestic share market is weak but some overseas markets are performing well. Average Expense ratio of the Global Fund category as per latest data is at 1.77%. On top of that, Global funds which invest in foreign mutual funds have to bear the expenses of the underlying funds also. The risk as measured by standard Deviation calculated for last one year period is at 1.41% which is higher than that of 1.07% of equity diversified funds. Exit load is charged by the schemes in the category between 1% to 3%. The corpus of the category as per the latest data was at Rs. 4,197 crore. Classification of Global Funds: Even though it is difficult to sub-classify the Global Funds Category as each schemes are varying in terms of objectives, we tried to classify them based on the assets in which they do invest primarily, geographical diversification and the style of investing. Hence we have arrived at four categories as, 1. Gold & Precious metals (Schemes which invest mainly in the shares of gold & precious metal companies), 2. Agribusiness (Schemes that focus predominantly on companies which have business exposure to agricultural activities), 3. Mining & Commodities (Schemes that invest in multi commodities related securities), 4. Region related funds. (Schemes that invest in companies belonging to particular region). Brief notes on each category are as follow; 1. Gold & Precious Metals : There are three funds coming under this category, viz; AIG World Gold, DSP BR World Gold and Birla Sun Life CEF - Global Precious Metals. AIG World Gold & DSP BR World Gold are fund of funds schemes investing in overseas mutual funds which focus primarily on gold mining companies while ‘Birla Sun Life CEF - Global Precious Metals’ is investing directly in overseas companies that have business exposure to various precious metals.Category Analysis: Global Funds Retail Research
  6. 6. 6Mutual Fund Category Analysis contd…. AIG World Gold fund invests predominantly in units of Falcon Gold Equity Fund, domiciled in Switzerland whereas DSP BR World Gold allocates its maximum assets into BlackRock Global Funds - World Gold Fund, a fund from its parent fund house, domiciled in Luxembourg. Both the underlying funds do not hold any form of physical or dematerialized gold or metals but invest in stocks of companies in the business of extracting, processing and marketing of gold across globe. Investment may also take place in companies engaged in the business of mining other metals or precious stones. ‘Birla Sun Life CEF - Global Precious Metals fund’ is included in the category as it is identical and belongs to the same investment universe. This fund invests U.S.-traded stocks of companies engaged in the exploration and production of gold, silver and platinum-group metals. Relative performance of schemes in the Gold & Precious Metals Category: Note: Trailing Returns up to 1 year are annualized and over 1 year are CAGR. NAV/index values are as on May 15, 2012. Nature and risk of investing in the Gold & Precious metals Funds: The Funds are subject to volatility inherent in gold shares. They have particularly concentrated portfolios and if a particular investment declines in value it may have a more pronounced effect than if the Fund held a larger number of investments. The Funds invest in certain emerging markets that may be subject to additional risks from political, economic and market factors. Stocks of even the best-run mining companies will rise and fall with changing perceptions of economic growth. But just like the best companies in any industry, mining companies that manage their capital to consistently grow production and reserves, while controlling costs, always finish the cycle on higher ground, raising shareholder value.Category Analysis: Global Funds Retail Research
  7. 7. 7Mutual Fund Category Analysis contd…. Performance of the Industry: Prices of Mining companies’ stocks including gold mines have witnessed fall across the spectrum and sunk to their biggest discount over the recent periods. They underperformed their underlying commodities in the wake of waning risk appetite among investors across the world. Investors worry that the overhang situation in the Eurozone region, debt concerns in US and slower growth in Asia will reduce demand for key minerals and result in these stocks to fall further. Gold mining stocks have earnings and resources leveraged to the price of gold. In other words, as the price of the gold rises, profits of gold mining stocks rise more in percentage terms. Contrary to this, despite the price of the gold which rose around 5% (in USD terms) in the last one year period, the prices of most of gold miners witnessed significant fall due to the above mentioned reasons. Meanwhile, the FTSE Gold Mines Index, a respective benchmark for underlying mutual funds, was also down by 17.5% (as on May 09, 2012) over the same period. Going forward, the prices of the gold are likely to be range-bound over the short-term given the firm dollar and little prospect of real interest rate falling. However, the gold mining stocks are trading at attractive valuations on a number of metrics. Margin expansion in the gold mining industry has enabled companies to deliver record earnings in recent results. Free cash flow levels are also high and dividends are beginning to be increased. Performance of the category: The category posted lackluster performance over both the periods - short term as well as long term compared to other schemes in the overall global funds category. However, performance by AIG World Gold fund over the last three year period is notable as the scheme outperformed its peer schemes and overall global funds by posting 13% of CAGR return. The category witnessed huge dip during the short term as the category lost at least one fourth of the net assets. Experts believe that the U.S. monetary policy will be key for gold price, and also expect physical demand for gold from the Indian market to pick up through the second half of the year. As far as precious metals performance is concerned, near term perspective seems to be bearish given the supply-side risks remain elevated. Weakening of the rupee Vs. dollar has not helped such funds. The reason behind is that the currencies in countries primarily the funds invest, like Australia, Brazil and Indonesia, have also weakened in tandem with the Indian rupee.Category Analysis: Global Funds Retail Research
  8. 8. 8Mutual Fund Category Analysis contd…. Comparison of performance by Gold & Precious Funds Vs. Gold ($): 340 AIG World Gold 290 240 Birla Sun Life CEF - Global PMP 190 DSP BR World Gold 140 90 Gold ($) 12-Nov-08 12-Feb-09 12-May-09 12-Nov-09 12-Feb-10 12-May-10 12-Nov-10 12-Feb-11 12-May-11 12-Nov-11 12-Feb-12 12-Aug-09 12-Aug-10 12-Aug-11 Portfolio: The schemes maintain concentrated portfolios of investing only in mining industries as mandated, hold an average of 46 stocks. As far as regional exposure is concerned, more weightage has been given to Canada, followed by Latin America and South Africa. As far as metals exposure is concerned, Birla Sun Life CEF - Global Precious Metals holds 33% of holding (as of Mar 2012) in gold mining companies while the rest of the assets are in other precious metals like silver, platinum etc. The underlying funds of AIG World Gold and DSP BR World Gold held 75% and 89% of assets in gold mining companies. The category seems to be more risky while compared to other equity oriented categories as the standard deviation of the category which is calculated for last one year came at 1.96%.Category Analysis: Global Funds Retail Research
  9. 9. 9Mutual Fund Category Analysis contd…. Regional Exposures by underlying schemes: 80 Falcon Gold Equity BlackRock World Gold Birla Sun Life CEF - Global Precious Metals 60 40 20 0 Australasia United States Canada Latin America China Europe Russia South Africa To conclude, given the above mentioned facts, we are of the opinion that the prices of gold mining equities are likely to be under pressure across the board over the short term. However, being as a safe haven asset coupled with factors like continued uncertainty over global economic growth, geopolitical instabilities, concerns over long- term inflationary pressures and financial market worries can create a room for investors to flock back to the yellow metal. This will eventually result in to push up the prices of the gold and in turn, the prices of gold mining companies. This category is best suited for high risk appetite investors who are willing to have portfolio diversification across globe and to hold for the minimum period of 2 years and so.Category Analysis: Global Funds Retail Research
  10. 10. 10Mutual Fund Category Analysis contd…. 2. Agribusiness: DSP BR World Agriculture, DWS Global Agribusiness Offshore and Birla Sun Life CEF - Global Agri fund are the schemes coming under this category. DSP BR World Agriculture, DWS Global Agribusiness Offshore are fund of funds which invest in the underlying funds – ‘BlackRock Global Funds - World Agriculture Fund’ and ‘DWS Invest Global Agribusiness Fund’ respectively. Birla Sun Life CEF - Global Agri fund is an open ended equity scheme investing in companies that have business exposure to agricultural commodities. The schemes invest in the equity securities of agricultural companies worldwide. Agricultural companies are those which are engaged in agriculture, agricultural chemicals, equipment and infrastructure, agricultural commodities and food, bio-fuels, crop sciences, farm land and forestry. The funds also invest in the direct and indirect beneficiaries of the anticipated growth in the agriculture and/or affiliated/allied sectors. Prospects of Agribusiness industry: Agribusiness is the business of feeding the world. It includes the entire spectrum of businesses related to food production – from planting to the distribution and sales of the end product. Strong population growth, increasing middle class and increasing productivity are three major drivers for agribusiness. Rising food item prices worldwide suggests that a rising population and sustained increase in income levels, particularly in the developing countries, has increased demand for the agribusiness industry. Rapid population growth is leading to swelling demand for food. This coupled with increased consumption of higher proteins of the emerging giants like China and India are putting tremendous pressure on farmland and water resources. There is a desperate need to maximize farmlands’ potential not only through improving the productivity of land but also through improving the quality of its produce. This entails maximizing efficiency at every stage of the food supply chain – from farm to fork. The rapid growth of the middle class worldwide is one of the other global trends boosting the earnings in the agribusiness sector. The potential for increased productivity through the use of technology also favours the agribusiness companies. All these factors contribute to the enormous potential of the global agribusiness industry. The short term outlook for the industry is also likely to be attractive as grain and oilseed markets remain fundamentally tight with regard to demand and supply. Consequently, outlook for agricultural equities is also attractive, particularly in light of their compelling valuation levels. The long term investment case remains unchanged with strong secular demand drivers of a rising global population, increasing protein consumption in emerging markets and the adoption of alternative fuels such as bio-fuel.Category Analysis: Global Funds Retail Research
  11. 11. 11Mutual Fund Category Analysis contd….Risk and Return matrix on Global Agribusiness sub-sectors:Category Analysis: Global Funds Retail Research
  12. 12. 12Mutual Fund Category Analysis contd…. Risks associated with the agriculture industry: Economic forces and conditions, competitive pressures and government policies and regulations (including taxes, duties, tariffs, subsidies and import and export restrictions), world events, and extreme and unexpected weather conditions are some of the factors which could have a significant impact on the industry. Such factors may also influence the planting of certain crops as opposed to others, whether processed or unprocessed commodity products are traded and the location and size of crop production. Performance of the category: Though the category showed mediocre performance over the long term, the performance over short term has been good thanks to the bounce in prices of grain and soybean, supported by the release of the US Department of Agriculture US Stocks and US Planting Intention reports. Birla Sun Life CEF - Global Agri, the only scheme having NAV history for three years, delivered average return for the three year period compared to overall global fund category. The other two funds, though they are lacking for NAV history, the performance over short term is commendable. The performance of the agribusiness mutual funds is largely determined by the factors like performance of international equity markets, company-specific developments (e.g. if a newly developed fertilizer fails to meet market and earnings forecasts), exchange-rate movements of global currencies which may give rise to downside risks. Relative performance of Agribusiness schemes: Note: Trailing Returns up to 1 year are annualized and over 1 year are CAGR. NAV/index values are as on May 15, 2012.Category Analysis: Global Funds Retail Research
  13. 13. 13Mutual Fund Category Analysis contd… Performance of Agribusiness funds Vs. Benchmark:. 150 120 DWS Global Agribusiness Offshore Fund (G) M SCI World 140 DSP BR World Agricult ure Fund (G) S&P Global Agribusiness 130 110 120 110 100 100 90 90 May -10 J ul-10 Nov -10 J an-11 Mar-11 May -11 J ul-11 Nov -11 J an-12 Mar-12 Sep-10 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Apr-12 Mar-12 290 Birla Sun Life CEF - Global Agri S&P Global Agribusiness 250 210 170 130 90 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Nov-11 Jan-12 Mar-12 Sep-09 Sep-10 Sep-11Category Analysis: Global Funds Retail Research
  14. 14. 14Mutual Fund Category Analysis contd…. Portfolio: The schemes in the category hold a well diversified portfolio across geographies, having an average holding of 52 stocks. As far as country exposure is concerned, the category witnessed more weightage to US, followed by Canada and Latin America. As far as sector exposure is concerned, DWS Global Agribusiness fund holds 49% of holding (as of Mar 2012) in consumer staples. The category seems to be more risky while compared to other equity oriented categories (1.23%) as the standard deviation of the category which is calculated for last one year came at 1.44%. Given the growth prospects of the agribusiness industry seem to be attractive with strong secular demand drivers of a rising global population and increasing protein consumption in emerging markets, investors with high risk appetite can consider investing and hold at least 2 years. Regional break up by underlying schemes of Agribusiness category: 50 BlackRock GF - World Agriculture DWS Invest Global Agribusiness Birla SL CEF - Global Agri 40 30 20 10 0 United States Canada Latin United Eurozone Europe - ex Europe - Middle East / Japan Australasia Asia - Asia - America Kingdom Euro Emerging Africa Developed EmergingCategory Analysis: Global Funds Retail Research
  15. 15. 15Mutual Fund Category Analysis contd…. 3. Mining & Commodities : The schemes that have a mandate to allocate their maximum assets into various commodity equities and mining companies such as DSP BR World Mining, ING Global Commodities, Birla Sun Life CEF - Global Multi Commodity, Mirae Asset Global Commodity Stock and DSP BR World Energy are coming under this category. DSP BR World Mining, ING Global Commodities and DSP BR World Energy are fund of funds schemes while Birla Sun Life CEF - Global Multi Commodity and Mirae Asset Global Commodity Stock are open ended equity schemes that invest directly into overseas companies. Their investments are made (via FoF or direct invest) in such a manner on the companies that have business exposure to various commodities and mining industry like Energy, precious metals, industrial metals, water and agricultural commodities. Though they belong to same investment universe, they differ from each other slightly in terms of the investment strategies. DSP BR world energy allocates its assets into two overseas mutual funds belonging to its parent fund house named BlackRock Global Funds- World Energy Fund and BlackRock Global Funds- New Energy Fund, trying to benefit out from the long-term demand-supply gap in the sources of energy. Both the underlying funds invest in such companies in the world involved in the energy industry (exploration, production, oil services, transportation, refining, etc.) DSP BR World Mining fund invests in the equity securities of mining and metals companies whose predominant economic activity is the production of base metals and industrial minerals such as iron ore and coal. The Fund may also hold the equity securities of companies whose predominant economic activity is in gold or other precious metal or mineral mining. ING Global Commodities Fund invests in multi commodity related securities. Mirae Asset Global Commodity Stock invests in stocks of companies that are directly or indirectly engaged in commodity and commodities related industries. The fund allocates its maximum assets in Asia Pacific & Pacific and Emerging Markets given that these locations are rich in commodity reserves. The scheme holds maximum assets in the companies of coal, cement and agribusinesses. Birla Sun Life CEF - Global Multi Commodity is also identical in terms of same investment pattern as the scheme invests in companies that have business exposure to various commodities like Energy, precious metals, industrial metals, water and agricultural commodities.Category Analysis: Global Funds Retail Research
  16. 16. 16Mutual Fund Category Analysis contd… Performance of global commodity over decade: Commodity prices rose dramatically over the past decade, interrupted only briefly by the global financial crisis. By the end of 2011, average prices for energy and base metals in real terms were three times as high as just a decade ago, approaching or surpassing their record levels over the past four decades. Food and raw material prices also rose markedly, although they remain well below the highs reached in the 1970s. Elevated commodity prices is attributed to the sustained growth in emerging market economies over the past decade. Source: IMF.Category Analysis: Global Funds Retail Research
  17. 17. 17Mutual Fund Category Analysis contd…. The performance of the mining sector is driven by the current global macro-economic scenario. The supply/demand balance in certain commodities is constructive; demand from the world’s largest consumer of commodities, China, is robust and would be further boosted if the country continues to move towards a monetary easing phase; supply disruptions and challenges that played key roles in keeping prices supported at various stages in 2011, appear likely to do so again in 2012. Mining company valuations look attractive across a variety of metrics such as earnings and cash flow multiples and price to NAV levels. As far as precious metals performance is concerned, near term perspective seems to be bearish given the supply- side risks remain elevated. The U.S. monetary policy will be key for gold price, and also expect physical demand for gold from the Indian market to pick up through the second half of the year. Relative performance of mining & commodity schemes: Note: Trailing Returns up to 1 year are annualized and over 1 year are CAGR. NAV/index values are as on May 15, 2012.Category Analysis: Global Funds Retail Research
  18. 18. 18Mutual Fund Category Analysis contd…. Performance of the category: All the schemes from the ‘Mining & Commodities’ posted below average returns compared to overall global funds category and equity diversified category. Mining equities posted loss in the last one year period on the back of Eurozone crisis, debt concerns in US and slower growth in Asia. Combined with above reasons, higher interest rates across consuming nations impacted the commodities and commodities related equities. All the schemes in the categories showed underperformance during all set of market cycles. The category underperformed global category as well as equity diversified schemes. Relative performance of mining & commodity schemes: 130 Birla Sun Life CEF - Global MCP (G) 120 DSP BR World Energy Fund (G) 110 DSP BR World Mining Fund (G) 100 ING Global Commodities Fund (G) 90 80 Mirae Asset Global Commodity Stock Fund (G) 70 MSCI World Jan-10 Mar-10 May-10 Jul-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Nov-11 Jan-12 Mar-12 May-12 Sep-10 Sep-11Category Analysis: Global Funds Retail Research
  19. 19. 19Mutual Fund Category Analysis contd…. Portfolio: The schemes in the category hold a well diversified portfolio across geography. As far as country exposure is concerned, the category witnessed more weightage to US, followed by Canada and Asia. Maximum exposures are seen in coal, petroleum products and agribusinesses companies. The category seems to be more risky while compared to other equity oriented categories (1.07%) as the standard deviation of the category which is calculated for last one year came at 1.75%. Exit load of the category ranging from 1% to 2%. The total corpus of the scheme as per the latest data was at Rs. 322 crore. Given its gloomy outlook due to growth slow down in emerging nations, it is ideal to say to stay away from the category. Relative performance of mining & commodity schemes: DSP BR World Mining ING Global Commodities Birla CEF - Global Multi Commodity Mirae Asset Global Commodity Stock DSP BR World Energy 70 60 50 40 30 20 10 0 United Canada Latin United Eurozone Europe - ex Europe - Middle East Japan Australasia Asia - Asia - States America Kingdom Euro Emerging / Africa Developed EmergingCategory Analysis: Global Funds Retail Research
  20. 20. 20Mutual Fund Category Analysis contd…. 4. Region related Funds: Numerous schemes in the Global fund category follow the strategy of allocating their major investments in such companies which based in a particular region or a country. These funds can be further categorized as Across the Globe, Emerging Markets and Country Specific. The economy of every country and region in the world is different from the other. There are regions that have booming economies. Investing in such regions offer the best diversification for one’s portfolio. Further, they allow investors exposure to markets at different risk levels. Of course, there will be lesser risks if the funds reach is wider. Amongst the sub categories, ‘Region related - Across the Globe Funds’ can be invested in any part of the globe thus can give more diversification than the other global funds categories. ‘Region related - Country Specific Funds’ are invested in one particular region or country. This type of concentration can give these funds volatility. ‘Region related – Emerging Markets funds’ has the greatest volatility among the three categories. They are invested in underdeveloped countries but have great potential for economic growth. However these can be risky due to political crisis, volatility in growth rates, collapse of the currency and corruption. Advantages: The primary advantage to investing in such regional related global funds is that the stock markets of different countries are often uncorrelated with each other. Investing is diverse, uncorrelated assets gives the best long-term results because different assets classes will do well at different times. The added risk that one accepts by investing in these countries can lead to larger gains. Disadvantages: The drawback to investing abroad is that some of the factors that affect the success of investment are difficult to understand, or predict. Political unrest can lead to losing an investment in a particular country. Losses can also be created by the relationship between the multiple countries, or by large shifts in the currencies in play. The fluctuations in the currency will still have a good or bad effect on the portfolio despite the fact that the international economies are doing quite well. Its hard to say that deprecation in Rupee value versus USD always benefits the global funds, which depends mainly on the countries where the funds exposed to.Category Analysis: Global Funds Retail Research
  21. 21. 21Mutual Fund Category Analysis contd…. a. Region related – Across the Globe Funds: There are five funds coming under this category as named, Birla Sun Life International Equity - Plan A, DWS Global Thematic Offshore Fund, Templeton India Equity Income, Fidelity Global Real Assets and ING Global Real Estate fund. Birla Sun Life International Equity - Plan B, one of the schemes in the category, not included for the study as it allocates only 0-35% of assets into global market. Performance of ‘Region related - Across the Globe Funds’: Note: Trailing Returns up to 1 year are annualized and over 1 year are CAGR. NAV/index values are as on May 15, 2012. The performance of the schemes from the category is commendable compared to other sub categories in the global funds. In most of the time frames, the category outperformed overall global funds and equity diversified categories. The schemes, ING Global Real Estate and Birla Sun Life International Equity - Plan A posted notable returns over the various time frames of one, two and three year periods. The former registered 15%, 16% and 19% of CAGR returns for the periods while the later delivered 7%, 15% and 14% of returns respectively. Revival in real estate market worldwide and rupee value depreciation against US Dollar helped ING Global Real Estate to outperform over the period. Hence, investors with high risk appetite can invest in the units of ING Global Real Estate and Birla Sun Life International Equity - Plan A with time horizon of 2 years and so.Category Analysis: Global Funds Retail Research
  22. 22. 22Mutual Fund Category Analysis contd…. b. Region related – Emerging Markets Funds: There are seven schemes coming under this category. These are HSBC Emerging Markets, ING Latin America Equity, JPMorgan EEMEA Equity Off-Shore, Kotak Global Emerging Market, Principal Global Opportunities, Sundaram Global Advantage and Tata Growing Economies Infrastructure – A. Investment in emerging markets are subject to a higher volatility than more developed markets due to greater political, tax, economic, social, and foreign exchange, risks, etc. The size and trading volume of securities markets in emerging markets may be substantially smaller than developed markets. This may subject the funds to higher liquidity and volatility risks. Custody and registration of assets in emerging markets may be less reliable than in developed markets, which may subject the funds to higher settlement risk. These funds may be subject to higher regulatory risks due to low level of regulation, enforcement of regulations and monitoring of investors’ activities in emerging markets. Performance of ‘Region related – Emerging Markets Funds’: Note: Trailing Returns up to 1 year are annualized and over 1 year are CAGR. NAV/index values are as on May 15, 2012. Though the category delivered sluggish returns during the short term, it posted average return over long run. Principal Global Opportunities, Sundaram Global Advantage and Kotak Global Emerging Market posted above average returns for the long term registering 16%, 14% and 14% of CAGR return for the three year time frame.Category Analysis: Global Funds Retail Research
  23. 23. 23Mutual Fund Category Analysis contd…. c. Region related – Country specific Funds: A country specific mutual fund is one in which the manager selects securities from a specific country in an attempt to mirror or outperform the prevailing stock index in that country. They are the schemes investing directly or in mutual fund or in the index. There are nine funds coming under this category focusing on each country/region. Performance of ‘Region related – Country specific Funds’: Note: Trailing Returns up to 1 year are annualized and over 1 year are CAGR. NAV/index values are as on May 15, 2012. The performance of the each scheme depends on the performance of the particular country/region where they invest. These are high risk funds and not geographically diversified, as they focus on a particular country. However, they maintain diversified portfolios spreading across the sectors and market capitalization.Category Analysis: Global Funds Retail Research
  24. 24. 24Mutual Fund Category Analysis contd…. Analyst: Dhuraivel Gunasekaran. (Database sources: AMC Sites, NAVIndia and Ace MF) HDFC Securities Limited, I Think Techno Campus, Bulding –B, ”Alpha”, Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone (022) 30753400 Fax: (022) 30753435 Disclaimer: Mutual Fund investments are subject to risk. Past performance is no guarantee for future performance. This document has been prepared by HDFC Securities Limited and is meant for sole use by the recipient and not for circulation. This document is not to be reported or copied or made available to others. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. We may have from time to time positions or options on, and buy and sell securities referred to herein. We may from time to time solicit from, or perform investment banking, or other services for, any company mentioned in this document. This report is intended for non Institutional Clients.Category Analysis: Global Funds Retail Research

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