Sucheta Dalal :Global funds caught in turmoil
Sucheta Dalal

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Global funds caught in turmoil  

May 7, 2010

In one of their clever marketing tricks, fund companies have been suggesting that you should invest in global funds, offering investors the chance for allocating their nest-egg across different geographies. The idea of course is to gather more assets, under the garb of offering you diversification. How many of these funds actually understood the risk underlying such a product? Our guess is very few.

Many things have happened in the western markets in the past few weeks – Goldman Sachs’ alleged civil fraud, Greece’s debt troubles, Icelandic volcanoes and what not. After a period of relative calm and serenity, western markets have again been hit by financial woes. Exchange rates have gone haywire and stock markets have lost sheen. Concerns over Greece’s debt are being shadowed by vulnerabilities in Portugal, Spain and Italy. In such a scenario, would investors be comfortable investing in a fund that invests in global fund offerings? Right time to take a look at how global funds have been doing.

Moneylife has previously written how these funds are mere gimmicks; our advice being - stay away from these funds. First, most of these global funds have exhibited severe underperformance with average returns. For instance, the Principal Global Opportunities Fund has provided a one-year return of 23.36%, when most Indian indices have been up 80%. The Sundaram BNP Paribas Global Advantage Fund has returned just 24.70%. Similarly, the DWS Global Thematic Offshore Fund has returned a paltry 14.82%. The list goes on.

Funds that put your money in other countries presumably offer another round of diversification. That also means you are exposed to all kinds of risks unique to different countries, plagued with their own set of problems. Most shockingly, you cannot even compare how these funds have done vis-à-vis a benchmark. Global funds are pure fads. When the commodity markets are shooting up, fund companies will launch commodity-focused equity funds. When the Chinese market is hot, they will launch a China fund.

Take for example, the Franklin Asian Equity Fund, launched in December 2007, when the Asian markets were hot property among fund managers, what with the abundance of decoupling and other hackneyed theories. Since inception, the fund has given a return of -1.32%.
Sanket Dhanorkar

-- Sucheta Dalal