Mutual Funds

Undone by the commodity rout

Anand Kalyanaraman | Updated on January 22, 2018


Global commodity and energy funds have been drained of charge

If you put money in India-based global commodity and energy funds, there’s reason to be glum. The three funds in this category — Birla Sun Life Global Commodities Fund, DSP BR World Energy Fund and Mirae Asset Global Commodity Stock Fund — suffered deep cuts last year, losing 16-26 per cent.

These funds essentially bet on global commodities, which have been routed since mid-2014. Crude oil and natural gas have more than halved, while the prices of copper, tin, lead and zinc are down 20-30 per cent.

A combination of factors — weak demand from a slowing China, economic troubles in Europe, oversupply of many commodities, and a strong dollar, thanks to impending rate hike in the US — is to blame. No surprise then that the funds’ performances don’t paint a pretty picture.

Birla Sun Life Global Commodities Fund currently has nearly 85 per cent of its corpus in two global mutual funds — Martin Currie Global Resources and First State Global Umbrella Fund.

These funds, which invest mainly in energy and mining stocks such as Total, Exxon Mobil, BHP Billiton and Rio Tinto, lost more than 20 per cent last year.

This has dragged the performance of Birla Sun Life Global Commodities Fund (down 19 per cent). Over the past few months, the fund has gradually increased its exposure to debt instruments (about 16 per cent now), possibly in an attempt to cut losses.

DSP BR World Energy Fund has put 94 per cent of its corpus in BlackRock World Energy Fund and New Energy Fund.

The World Energy Fund, in which the chunk is deployed, invests mostly in conventional energy stocks such as Exxon Mobil, Royal Dutch Shell, ConocoPhillips and Anadarko.

These stocks have fared badly due to the rout of oil and gas and consequently the fund slipped about 28 per cent last year. The New Energy Fund, which invests in alternative energy stocks, has done relatively better, losing about 8 per cent. The DSP BR World Energy Fund is down nearly 16 per cent.

Unlike its peers which invest in other funds, Mirae Asset Global Commodity Stock Fund deploys money directly in energy and commodity stocks, both global (Asia Pacific) and Indian. Indian stocks such as Reliance Industries, ONGC and Coal India form about a third of the portfolio.

While Reliance Industries and Coal India have held up relatively better, some big picks, such as CNOOC, China Petroleum, ONGC and Woodside Petroleum have lost 25-40 per cent last year. This has hit Mirae Asset Global Commodity Stock Fund, with a loss of nearly 26 per cent.

Funds that invest in Indian commodity stocks have been better off. DSP BR Natural Resources & New Energy Fund, SBI Magnum Comma Fund and UTI Energy Fund, have lost 6-12 per cent. This is due to stocks such as BPCL and HPCL, which have been buoyant thanks to fuel pricing reforms.

Published on November 29, 2015

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