The Hindu Business Line : `Capitalising on global market opportunities'

This fund is different from other global investing options as it does not intend to invest 65 per cent of its assets in domestic equities (which other global funds do, to benefit from the dividend tax exemption).

Second, this fund plans to dynamically allocate its portfolio between equity, commodities and real-estate options in global markets. Mr Xavier Meyer, Product Manager-New Markets, BNP Paribas Asset Management, took on a few queries on this fund:

Can you explain the rationale for combining equities, real-estate and commodities into one product?

We believe this fund allows investors to capitalise on the best market opportunities, globally. We are focusing on emerging equities because fundamentals support this. The global emerging markets’ share of GDP has increased by 7 percentage points in six years.

Yet their share in the world market capitalisation remains relatively low, accounting for only 18 per cent of the world market cap. The valuations for emerging markets also continue to be lower than for the developed markets (though India has a high PE within emerging markets at 18.3).

As we expect the emerging markets to continue to deliver relatively high growth, the stock market values have to catch up. There are three risks associated with emerging markets.

One, dependence upon the US economy. This has reduced with growing domestic consumption.

The second is inflation. We believe that commodity and real-estate exposure will help address inflation concerns associated with the emerging economies, as economic growth remains strong.

Third, geo-political risks, which we can counter by being overweight on oil. The real-estate exposure could help achieve the same or better returns on the portfolio, with a lower risk profile, compared with a 100 per cent emerging market or commodity fund. However, I must add that this fund bears a currency risk.

Not only does this fund have to make asset allocation calls, but it also has to choose the best investment options within each asset class. Isn’t that a lot of calls for the fund manager to take?

This product will be advised by FundQuest, a specialist in multi-manager and multi-asset class products. FundQuest already manages several products, some of which are much more complicated than this one, and therefore, it already has a view on different asset classes, geographies and so on. In fact, FundQuest manages a few ‘total return’ or absolute return products that also have other asset classes such as distressed assets and fixed income; we have actually restricted the assets we would consider for this fund.

Because of its expertise, FundQuest also has a ‘buy list’ of funds within each asset class; once an allocation is decided, these will be used to select funds within each category. Moreover, you will notice that in our model portfolio, we are trying to play commodities through the ETF route .

The real-estate exposure is also through ETFs that track global and Asian yields on REITs. Only the emerging equity exposure is actively managed and fund selection will be decided by FundQuest.

Aarati Krishnan

Shanthi Venkataraman

(Queries may be e-mailed to mf@thehindu.co.in, or sent by post to Business Line, 859- 860, Anna Salai, Chennai 600002.)

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