• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Brand Quest
• The New Manager
• BL Club
• Smartbuy
• Books
• Gallery

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Foreign Exchange

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth
• Events 2007

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

Srividhya Sivakumar

DSP BlackRock World Mining Fund (DSPBR WMF), an open-ended fund of funds equity scheme, is the latest thematic fund offering from this asset management company.

Seeking to predominantly invest in BlackRock Global Funds (BGF) – World Mining Fund, this offering will expose unitholders to global equity securities of mining and metal companies, whose principal economic activity is centred on production of base metals, industrial minerals, gold and other precious metals.

The fund may also invest in the units of other similar overseas mutual fund schemes (overall equity upto 80 per cent), while the remaining 20 per cent will be allocated to money market securities and liquid schemes from DSPBR's stable.

Growth fundamentals

After a forgettable last year, the global mining and metals sector appears to have made a comeback of sorts. Unlike the first half of 2009, which saw China emerge as the primary demand driver for commodities, what with its aggressive restocking, there are now visible signs of a material restocking cycle (in select metals) in the US and Europe.

Pepped up by the stimulus spending on infrastructure projects and the potential recovery in private sector, the overall demand for commodities is expected to move north in the coming quarters.

While to a great extent this would depend on how global economies fare, it is comforting that most world economies are beginning to show signs of revival.

What may also help drive commodity prices up are the supply-side bottlenecks. Last year's credit crisis had resulted in widespread production cutbacks and shelving of a large number of planned expansion projects.

Such constraints on the supply side would provide a constructive environment for commodity prices, which are the key earnings driver for mining companies.

While the fund would offer a one-stop shop for investors looking to add exposure to the global mining and metal sector, it merits attention that there is a couple of existing fund options along similar genre. Funds such as Birla Sun Life Commodities Equities –Global Multi Commodity and Mirae Asset Global Commodity Stocks also offer exposure to global commodities.

Comment

But, to its credit, the NFO scores high in terms of a long track record of its underlying fund BGF-WMF. BGW-WMF is one of the largest funds in its category in the world and has a long term performance track record. It has beaten its benchmark, HSBF Global Mining (cap) over one, three and five-year periods.

While its one-year return of 71 per cent (as of Oct 30) does pale when compared with the 93 per cent returned by Mirae Asset Global Commodity Stocks Fund, the latter's smaller asset base, besides its higher emerging market allocation may offer some explanation. BGF-WMF has assets of over $11.5 billion (about Rs 53,769 crore) under management.

Additionally, BGF-WMF unlike the existing global commodity fund options doesn't invest in oil companies. It instead sports a concentrated portfolio almost exclusively invested in metals and mining companies. The NFO therefore may be more suited for investors who wish to make a specific allocation towards metals and mining sector (sans oil).

In terms of sector exposure, while the portfolio of BGF WMF had a significant allocation to gold (15 per cent) and copper (11 per cent), more than half its portfolio is spread across diversified category. As to geographical market exposure, it is UK (35 per cent), US (25 per cent) and South Africa (10 per cent) that enjoy high allocation. Among the major stocks that make up its portfolio are Vale, Rio Tinto, BHP Billiton and Xstrata.

As for risks, besides those associated with investing in sector funds, rupee appreciation against major global currencies can also weigh on returns. The NFO closes on December 18, 2009.

More Stories on : Mutual Funds | New Fund Offer | Recommendation

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Copyright © 2009, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line