ATM :: Global fund of funds a good investment for diversification; fetches steady returns

Rajesh Naidu & Nikhil Walavalkar, ET Bureau | Apr 22, 2014, 02.43PM IST | Times of India


The global fund of funds, a fund that invests in overseas markets, is a category that has generated considerable interest from mutual fund houses in recent months.

At a time when Indian markets are looking attractive, analysts are advising high net worth individuals (HNIs) to invest a small portion of their investment portfolio in these funds for diversification. Retail investors, on the other hand, should opt for equity funds focused on the Indian market as they can hope to gain from the improvement in business and investment environment under a new government after the elections, say analysts.

Since the beginning of 2014, leading fund houses have launched a number of fund of funds. HSBC MF has launched Asia Pacific Dividend Yield Fund (ex-Japan). Religare has come up with two global funds – Pan European Equity Fund and Global Equity Income Fund, while JP Morgan has offered Dynamic Equity Offshore Fund. Afew more such funds are in the pipeline. Franklin Templeton Mutual Fund is set to launch its European Fund, while Religare is expected to launch a fund focused on Asia consumption theme and another on US value stocks.

“Many investors who invested in Indian equity mutual funds have not made any money between 2008 and 2013. Over the same period, however, the US economy got out of woods, followed by Europe. Equity markets overseas have posted better returns than Indian markets. No wonder, investors are upbeat on global equities,” said Rupesh Bhansali, head – distribution at Mumbai-based brokerage GEPL Capital.

According to data provided by the Association of Mutual Funds of India, total inflows into the fund of funds category in 2013-14 were about Rs 1,101 crore, while redemptions in equity schemes amounted to Rs 7,627 crore. Investors were attracted to the outper formance till December 2013 of funds focused on overseas markets. According to Value Research, the fund of funds category gave average returns of 14.2 per cent in 2013, while large-cap equity funds delivered just 6.7 per cent returns during the period.

Exposure to stable and developed markets ensured consistent returns through fund of funds over the past few years. “If one looks at the past performance of developed markets such as the US, Europe and Japan, they have given consistent returns. This has worked well for informed investors who are aware of global developments and their implications,” said Niranjan Risbood, director – fund research at Morningstar India.

Saurabh Nanavati, managing director and CEO of Religare Invesco Mutual Fund, said, “Indian investors need to diversify their investments overseas. Currency movement over the past three years further underlines the need to diversify overseas.” Invesco’s products offering exposure to various overseas markets have done extremely well over the long-term, she added.

Experts, however, caution that developed markets such as the US have already run up and may not have much upside to offer. They point out that investments in fund of funds should be seen more as a diversification tool than as a means of generating superior returns.

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