Benefit from global diversification

The right vehicle

Is it possible for you to invest abroad? Yes,it is,and no,its not illegal to do so,subject to certain volume restrictions. An individual can invest up to US 200,000 per annum. His funds can be invested in any of the generally-accepted asset classes. However,for lay individuals it would be difficult to find out where to invest and how to route the money to that investment. This is a Pandoras box best left unopened. To overcome this problem,mutual fund houses have launched global funds. Principal Global Opportunities was the first off the block way back in 2004. There have been several additions to the category since then.

Dual options

Fund houses invest globally via either of the two routes: one,they may invest in global assets directly,i.e.,by launching a fund in India and having a dedicated fund manager manage the portfolio. The second and more popular route now is to launch a fund of funds,i.e.,a router fund that directs your money into existing and hopefully established funds abroad.

What is the difference between the two routes? In the first instance,the fund manager scans the globe to find out the right investments that meet the investment norms laid down in the offer document. If he does his job well,the size of his fund grows and it makes profits for both the fund house and the investors. In the second instance,global fund houses with Indian operations already possess successful schemes in the other geographic domains where they operate. They simply launch a router fund,i.e.,a scheme that collects domestic funds and plugs them into the target fund abroad. In the case of fund of funds,instead of a single target fund,the fund manager is given the brief to scour the global markets and invest in a bouquet of funds belonging to the same category and thus ensure a top quartile or top decile performance.

Should you invest?

Yes and no. No if you are a novice investor who has just started building up his portfolio and cannot afford to take on too much risk. Yes,if you have been investing for a while,have built up a comfortable corpus,and have gathered some experience of investing.

Besides equities,global gold funds are one category that I am sure all of us are aware of. Popular emerging themes for global funds could be forex and agri funds.

Fund options

Although the performance of global funds or fund of funds has so far not been worth writing home about,remember that we should invest based on future potential and not past results. It is a relief that India is leading the turnaround story,but a few other economies are doing well too. A few global equity sectors,in fact,are zooming up. I have been an unabashed fan of the DWS Global Thematic Offshore Fund. This fund attempts to identify successful themes and emerging themes from all over the world and takes exposure to these sectors and themes via global funds. This fund with a striking global long-term track record has in recent times been hit by adverse currency movements,but its long-term performance gives hope that the reverses were just a blip and its only a matter of time before the fund starts doing well again.

If China is the land where all opportunities lie,then JPMorgan JF Greater China Equity Off-shore,a fund of funds offering from the JP Morgan stable could be your ticket. If you think the current theme of food security could make a significant difference to your investment profile,then the Birla Sun Life Commodities Equities Fund Global Agri,a global equity fund,should be a part of your investment plan. If once again energy and oil are beginning to look like a lottery ticket,then DSP BlackRock World Energy should be a part of your portfolio.

The way to choose a fund in this category is to decide on the theme that you wish to focus on,then choose a suitable fund to be a part of your portfolio,and take advantage of global fund management expertise.

Finally,if the global fund segment is so attractive,then why has it been a non-performer so far? The first reason,as mentioned already,is adverse currency movements. The second is the underperformance of many leading bourses vis-à-vis India. The dollar moved from a high of 30 to a low of 50 in the last 18 months. That made the units more expensive in rupee terms. However,in recent times the dollar has moved to a more agreeable 46 and is expected to get cheaper. The second reason is self-explanatory. Indian markets have given stupendous returns in the last 8 months or so while most of the world has been licking its wounds from the drubbing of 2008. But with liquidity flows getting stronger and the investment banking business on its feet again,it is expected that the rest of the world will catch up fast.

If you can handle the short-term pain,look no further than the global fund segment. Play it right and you could make big money from it in the long run. u

The author is a Kolkata-based mutual fund analyst.

Email: wiseprasungmail.com