Currency risk, tax treatment and India’s outperformance vis-à-vis overseas markets have remained the key detriment to the growth of global funds.
Performance & Suitability
According to Dhruva Raj Chatterji, Senior Research Analyst, Morningstar, 2012 has not been a good year for overseas fund of funds because India was an outperformer compared to other markets. “The performance of funds investing in gold mining companies was tepid as these companies didn’t do too well. Overseas funds performance was lackluster in 2012 in comparison with 2011,” says Dhruva.
One of the primary reasons for the slow take off these funds has been the love for Indian equities among investors and distributors. Indian markets gained 26% last year while the overseas fund category delivered 14%. Even over a three year timeframe when global funds delivered around 6%, domestic funds focused on sectors like healthcare (17%), FMCG (30%) and financial services sector (14%) delivered comparatively better results. (Source: Morningstar)
Performance of Global Funds
|
Scheme |
6-month |
1-year |
3-year |
|
FT India Feeder Franklin US Opportunities |
3 |
NA |
NA |
|
JP Morgan JF ASEAN Equity Off Shore |
15 |
31 |
NA |
|
JP Morgan JF Greater China Equity Off-shore |
17 |
30 |
9 |
|
Kotak Global Emerging Market |
16 |
26 |
10 |
|
ING Global Real Estate Retail |
7 |
25 |
14 |
|
JP Morgan Emerging Eu Mid East and Afr Eqt Off Shore |
13 |
24 |
NA |
|
HSBC Emerging Markets |
15 |
24 |
6 |
|
Principal Global Opportunities |
11 |
23 |
10 |
|
Mirae Asset China Advantage |
16 |
22 |
6 |
|
L&T Global Real Assets |
12 |
21 |
NA |
|
DWS Global Agribusiness Offshore Reg |
5 |
20 |
NA |
|
Sundaram Global Advantage |
10 |
19 |
9 |
|
DWS Global Thematic Offshore |
9 |
17 |
7 |
|
DSPBR World Agriculture |
5 |
16 |
NA |
|
HSBC Brazil |
12 |
9 |
NA |
|
ING Latin America Equity |
6 |
9 |
1 |
|
DSPBR World Mining Reg |
10 |
3 |
NA |
|
ING OptiMix Global Commodities |
7 |
-1 |
3 |
|
DSPBR World Gold Reg |
6 |
-2 |
7 |
|
DSPBR World Energy Reg |
1 |
-3 |
2 |
|
PineBridge World Gold Standard |
5 |
-5 |
5 |
|
Absolute Returns as on January 2, 2013. Source : Value Research |
|||
Another reason for the low popularity of global funds is that these funds are looked at only as a diversification tool which is largely marketed to sophisticated investors with a higher risk appetite. Advisors recommend keeping very low exposure to such funds. AMCs don’t focus on mass retail investors.
The assets of overseas funds have only declined since 2008. These funds were managing Rs 2947 crore in September 2008. Currently there are 32 global funds with assets under management of Rs 2295 crore, constituting a mere 0.3% of industry’s total assets. AMCs don’t actively promote such funds on an ongoing basis due to a lack of advisors’ and investors’ interest in these funds. It is more of a ‘pull’ product than ‘push’. Investors come if they are bullish about a certain market or theme’s performance in the near term and get out if they make some money.
Not many advisors are willing to recommend these funds, at least to their retail investors. “When it comes to taxation, overseas funds are treated as debt funds. Debt funds are offering similar returns offered by global funds. Moreover there is a currency risk. If the dollar appreciates from here then there is little chance to make money,” observes Gajendra Kothari of Etica Wealth Management.
Retail investor’s averseness towards these funds is evident by the tepid response in NFOs. The recently launched ICICI Prudential US Equity Fund collected approximately Rs 56 crore. DSP BlackRock, which has a major share in this category (Rs 1009 crore as on November 2012), mopped up Rs 26 crore in its DSPBR US Flexible Equity Fund launch. Franklin Templeton’s FT India Feeder - Franklin U. S. Opportunities Fund got a better response collecting Rs 104 crore. But despite the not so enthusiastic response, many AMCs are planning to launch overseas funds to strengthen their product basket.
New funds in the pipeline
HSBC Mutual Fund plans to launch an HSBC Asia Pacific (Ex Japan) Dividend Yield Fund which will invest in HSBC Global Investment Funds (HGIF) Asia Pacific Ex Japan Equity High Dividend Fund. Also in the pipeline is an HSBC Russia Fund.
After partnering with Schroder, Axis is launching a fund called Axis Asian Income Fund which will invest in Indian debt and in Schroder International Selection Fund Asian Opportunities Fund. Franklin Templeton is launching a fund called FT India Feeder – Asia-LatAm Fund which will invest in emerging markets in Asia and Latin America.
Reliance AMC too plans to launch its Reliance US Equity Opportunities Fund. However, this fund will invest directly in US securities unlike a fund of fund which invests in an existing master fund. AMCs with a foreign partner have usually taken the feeder fund route while others have invested directly in overseas stocks.
“Since Indian markets did well from 2004 to 2007, the industry didn’t feel the need to launch overseas funds. It is suitable for sophisticated investors who track overseas markets. Such funds are mainly looked at from a diversification perspective. This category didn’t grow too much because the diversification aspect as envisaged by AMCs didn’t work. AMCs don’t aggressively promote these funds because such funds can’t be sold to all types of investors. Investors’ risk appetite and goals differ,” says Sunil Subramaniam, Director, Sales & Marketing, Sundaram AMC.
Meanwhile, fund officials are clamoring for relaxation from SEBI on launching their flagship global funds in India. Experts say that overseas funds will gain traction once investors have a wider variety of choice.
