Mutual Funds

Global commodity, energy funds drained

Anand Kalyanaraman | Updated on January 20, 2018 Published on May 15, 2016


Slowing Chinese demand, commodity oversupply hit home

The commodity rout over the past two years has taken a toll on India-based global commodity and energy funds. The Birla Sun Life Global Commodities Fund is down about 13 per cent over the past year, while the DSP BlackRock World Energy Fund has slipped nearly 17 per cent. The annualised return since inception of these funds in 2008/2009 is less than 2 per cent.

Until recently, there was another fund in the category — Mirae Asset Global Commodity Stock Fund. But this has been merged with the Mirae Asset India-China Consumption Fund with effect from March 2016 — a result, perhaps, of the pain in global commodities.

These three funds were launched during or in the aftermath of the global financial crisis in the hope of capitalising on recovering commodity prices. And they did see good days until mid-2014. But the perfect storm of slowing demand from China, economic woes in Europe, a strong dollar and oversupply in several commodities battered these funds. Over the past two years, the LME Index is down by about a quarter, with various metal-related commodities down 8-50 per cent and crude oil down nearly 60 per cent.

Both Birla Sun Life Global Commodities Fund and DSP BlackRock World Energy Fund are fund of funds — they invest much of their corpus in other funds that have exposure to global commodities.

Nearly 86 per cent of the corpus of Birla Sun Life Global Commodities is in Martin Currie Global Resources and First State Global Umbrella Global Resources. With investments in stocks such as Chevron, Exxon Mobil, ArcelorMittal and BHP Billiton, these funds lost about 20 per cent last year and about 30 per cent over two years.

Almost 97 per cent of the corpus of DSP BR World Energy Fund is deployed in two BlackRock Global Funds — World Energy Fund and New Energy Fund. Most of the corpus is in the former, which has bets on oil and gas stocks, such as ENI and Anadarko Petroleum.

This fund lost over 26 per cent last year and 38 per cent over two years. BlackRock New Energy bets primarily on stocks of alternative energy companies; it has done relatively better, losing 6-9 per cent over the past one to two years.

Interestingly, many global commodities, including crude oil, have rallied sharply from their lows in mid-January 2016. This has translated into handsome gains of about 19 per cent for the Birla Sun Life Global Commodities Fund and about 15 per cent for the DSP BlackRock World Energy Fund.

Uninspiring still

Despite this and the benefit from a weaker rupee, these funds’ returns over the long term are uninspiring. Only a sustained, sharp rally in commodity prices can help these funds turn the corner. But this seems unlikely, at least in the medium term.

Published on May 15, 2016

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