POW :: Product Crack: JPMorgan India Economic Resurgence Fund

Kayezad E. Adajania | First Published: Tue, Jan 13 2015. 07 35 PM IST | Live MInt
It will invest in companies and sectors across market capitalizations
The potential of rising economy and equity markets are leading more fund houses to launch new schemes that aim to start from scratch. JPMorgan Asset Management (India) Co. Pvt. Ltd has launched a new scheme called JPMorgan India Economic Resurgence Fund (JER).

What does it do?
JER is an open-ended fund. It will invest in companies and sectors across market capitalizations. The fund aims to invest in companies that it feels would benefit from the introduction of policies and scaling up of the reforms process that the central government aims to undertake in the next few years, including goods and services tax, labour reforms, liberalizing foreign direct investment, building of roads and infrastructure, and so on.

What works…
JER will be aggressively managed compared with the other multi-cap scheme in its bouquet, JPMorgan India Equity Fund. It will be a benchmark agnostic scheme, which means that it won’t necessarily follow the sectoral allocation of its benchmark index, despite having an index as per regulatory requirements. The fund manager may feel bullish about a particular sector, and would be free to allocate more money in that sector, even if the said sector has a modest or low exposure in the benchmark index. In rising markets, this strategy works if the fund manager’s calculations turn out to be right. But if they are wrong, the fund could be affected badly.

The fund house has been steadily building a good track record. After a tough first couple of years, its large-cap-oriented and mid-cap schemes have done well consistently.

…what doesn’t
JER suffers from the same malady that most new fund offers (NFO) suffer from, i.e., lack of track record. Although the fund manager says it would be managed aggressively and a few sectors would be dominant in this portfolio, we need to watch out for the scheme ending up with a long tail. A long tail in mutual funds parlance refers to a scheme having numerous stocks with small or negligible holdings, to lower the risk profile. Of course, how long a fund’s tail should be is subjective; it could be a deliberate strategy and some fund managers play it well. But if JER promises to be aggressively managed, it’s best to first see some evidence of aggression and how it differentiates itself.

What should you do?
JER is not going to follow a focused approach in terms of stocks. Its sectoral allocation could be concentrated but not its stock holdings. Hence, it remains to be seen if, in the name of risk control measures, the fund manager plays safe, or actually takes the aggressive approach as promised. JER is an open-ended fund, so you would be able to invest in it in the future as well. Avoid putting money in JER till the fund accumulates some track record.

Source : http://goo.gl/xX5WcT

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