The Hindu Business Line : Birla Sun Life International Equity: Hold

Birla Sun Life International Equity, with its global markets focus, may be a good diversifier to an investment portfolio dominated by Indian or emerging market securities. Opting for Plan A, which has a 100 per cent allocation to global markets, may be the more viable option, as Plan B, which has a 65 per cent exposure to Indian equities, may not materially contain downside risks.

As the fund invests in global markets and not just Asian or emerging markets, it has the potential to reduce the risk profile of your portfolio better than most other current international fund offerings in India. Plan A of the fund declined only about 7 per cent in 2008, while other international funds have fallen 20-30 per cent.

Indian diversified equity funds have dropped more than 35 per cent year-to-date, making a case for diversifying into global markets. However, given its insufficient track record, fresh exposures can be avoided at this juncture.

Developed markets

The key differentiator for Birla International Equity, launched in November 2007, is that it invests in stocks across markets. The S&P Global 1200, the fund’s benchmark, has a less than 5 per cent exposure to emerging markets.

Instead, most stocks in the investment universe belong to US and European markets. Although an exposure to US and European stocks may not appear attractive at a time when recession threat looms large, these markets have declined less than emerging markets.

This is because in a risk-averse environment, developed markets are preferred over emerging markets. Thus holding a fund focused on developed markets may be a good diversification option for an Indian investor.

The S&P Global 1200 has managed an annualised return of 9 per cent over the past five years. For an Indian investor, this performance may seem tepid for equity, considering the Sensex return in this period and the fact that debt options in India now offer similar returns.

However, the index return may be misleading. The fund is based on the premise that performing stocks can be found in every market. Stock and sector selection can help outperform the index. For instance, while the S&P Global 1200 has declined 14 per cent in 2008, the fund contained the decline to 7 per cent. This it did by largely abstaining from the financial sector, which have a 23 per cent weight in the index. A high cash position in the early part of the year may have also helped check value erosion.

Wider universe

The fund has a wide investment universe to choose from and selects stocks based on the advice of Standard & Poor’s Investment Advisory Services. The Plan A portfolio sports reputed names such as Coca Cola, BMW, Microsoft and a host of leading consumer companies, ranging from Nestle, to Groupe Danone and P&G.

It also offers exposure to sectors where Indian players are yet to make a global mark, such as defence, alternative energy, consumer electronics, chemicals, and so on. Top picks include companies focused in the oil sector such as Statoilhydro (oil and gas), Pride International (onshore and offshore drilling), and prominent Asian Stocks such as Industrial & Commercial Bank of China and Taiwan Semiconductor.

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