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Sudden Spurt in US Centric MF’s

I am sure you have observed how most fund houses have a tendency to bring out similar sounding products and MFs with similar themes due to intense competition. So, if one AMC announces Top-200 or Top-100 Fund, then all other AMCs will sooner rather than later, come out with a similar scheme. And this trend is repeated across all funds of all sectors & all market caps.

In the same vein, off-late we have had 2-3 MF’s with US centric funds. The first AMC to start the trend was Franklin Templeton. FT India Feeder Franklin US Opportunities fund was launched in Jan’12 with a view to provide capital appreciation by investing in units of Franklin US Opportunities. So, its basically a Fund-of-Funds which taps into US-based equity and equity based securities.

The current NAV of this fund is Rs.10.72 and its 6-monthly high has been Rs.11.4. This means, currently it is giving a return of 7.2%. But how sustainable is that, in this fluctuating market? When the fund was launched, the timing was such that global markets were doing pretty well for that brief period till Apr’12, and that’s when the 6-monthly high was achieved. But as the markets settled lower, the NAV too fell to Rs.10.5.

In the Manager’s report dated 31-May-12, the overview says that “US equity prices fell in May as US investors were focused primarily on the intensifying European sovereign debt/banking crisis, lower growth in China and various U.S. indicators that have recently worsened”.

Historical Performance31 May 2012 

1 Mth

3 Mths

6 Mths

YTD

1 Yr

3 Yrs

5 Yrs

10 Yrs

Since Incept

(03.04.00)

Franklin U.S. Opportunities Fund A(acc) USD—NAV

-9.18

-7.48

0.54

3.34

-6.55

50.51

9.76

73.77

-25.80

Russell 3000 Growth Index USD

-6.47

-3.75

6.55

6.88

0.56

59.85

9.95

60.04

-17.02

Whatever be the reason for poor performance, the truth is that in this globalised world, all markets are inter-related. So, the cause-effect ripples are felt everywhere.

The world has not decoupled and equities across the globe still move in tandem although the degrees vary.

Anyhow, a few weeks ago ICICI Prudential US Bluechip Equity Fund was launched with NAV of Rs.10 and as of today its trading at Rs.10.2. Again the objectives are the same, except for the fact that ICICI would be directly investing in US securities, including ADRs/GDRs issued by foreign companies. They, of course, claim that this will give exposure to Indian investors and provide us with an opportunity to gain from US markets growth as the market capitalisation of stocks listed in NYSE is 12 times more than those listed on BSE.

And this week, DSP has launched the DSP BlackRock US Flexible Equity fund and the NFO closes on 31-Jul. This fund is similar to FT fund discussed above, in the sense that, its a fund-of-funds whereby they would be investing in Blackrock Global funds.

Although these funds may provide investors an opportunity to diversify their portfolio, but the benefit to be drawn out of this is doubtful. In the long-run, as and when the Indian rupee recovers and goes back to levels of being less than 50 rupees conversion for each dollar, it will erase the gains. Also, I believe that growth is more sustainable in Indian markets than US markets. So, if we carefully choose a few midcap and smallcap funds, we will definitely get better returns than US centric funds.

Nevertheless, for the optimistic and enthusiastic investors who believe in American growth story, this may be a good opportunity to dive-in. And since the markets have been bearish for a while now, we maybe in for a good bull run and see good upside rallies in the future.

 
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Posted by on August 1, 2012 in mutual fund, personal finance

 

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