Printer Friendly

MUTUAL FUNDS.

The markets may be on a sticky wicket impacting the performance of diversified equity mutual funds (MFs), but with inflation still remaining high, funds focused on the commodities sector have come out on the top.

In all, six commodity-oriented MFs have made it to the top-10 list in the past six months and have delivered 9.4-18.6% during the period. While sensex and Nifty lost 6.1% and 6% respectively in six months (till March 25), diversified and tax-saving MFs lost 10%. Only pharmaceuticals and information technology-focused funds have managed to stay in the green but have given meagre returns.

"Commodities are becoming a natural hedge against equities. In any recovery, commodities as an asset class would do well," said Arvind Bansal, vice-president, ING MF. Commodities stocks would continue to outperform as long as global inflationary pressures persist, said Surajit Misra, national head, Bajaj Capital, a distribution platform for funds.

Stocks of commodity firms do well, pushing up returns from these funds when there is a strong demand for key raw materials in markets such as China and India. The impact of commodity prices is much higher in emerging markets such as India, said observers.

Experts said that investors should have commodity MFs in their portfolio as a hedge. That's because, India is not a top producer of major commodities (except food grains), and therefore it is susceptible to price hikes, which in turn would impact debt and equities market in the country.

Investors can have 5-10% in commodity-related MFs to start with, and can increase it up to 20% depending on market conditions, they said. Several commodity funds have outperformed their peers in the equities space by as much as 30%, said observers. Commodity MFs would give good returns as long as loose monetary policy continues in the West, said Bansal.

However, only a handful of commodity-oriented MFs are available and they have exposure to mostly global stocks and funds. These MFs invest in a range of companies including Monsanto, Rio Tinto, Posco, Exxon Mobil and funds with underlying investments in global commodity stocks.

Commodity-focused MFs, however, can be extremely volatile and most funds generated negative returns in the first six months of 2010. They also attract more taxes than diversified equity funds. Since these funds have their underlying investments in global commodity stocks, they also carry exchange rate risks. A strong rupee can impact returns adversely, said observers. The markets may be on a sticky wicket and impacting the performance of diversified equity mutual funds (MFs), but with inflation still remaining high, funds focused on the commodities sector have come out on top.

In all, six commodity-oriented MFs have made it to the top-10 list in the past six months and have delivered 9.4-18.6% during the period. While sensex and nifty have lost 6.1% and 6% respectively in six months (till March 25), diversified and tax-saving MFs are down 10%. Only pharmaceuticals and IT-focused funds have managed to stay in the green but have given meagre returns. "Commodities are becoming a natural hedge against equities. In any recovery, commodities as an asset class would do well," said Arvind Bansal, vice-president, ING MF. "Commodities stocks would continue to outperform as long as global inflationary pressures persist," said Surajit Misra, national head, Bajaj Capital, a distribution platform for funds. Commodity stocks do well, pushing up returns from these funds when there is a strong demand for key raw materials in markets like China and India. The impact of commodity prices is much higher in emerging markets, said observers.

Experts said that investors should have commodity MFs in their portfolio as a hedge. That's because, India is not a top producer of major commodities (except food grains), and therefore, it is susceptible to price hikes, which in turn would impact debt and equities market in the country. Investors can have 5-10% in commodity-related MFs to start with, and can increase it up to 20% depending on market conditions, they said. Several commodity funds have outperformed their peers in the equities space by as much as 30%, said experts. Commodity MFs would give good returns as long as loose monetary policy continues in the West, said Bansal.

However, only a handful of commodity-oriented MFs are available and they have exposure to mostly global stocks and funds. These MFs invest in a range of companies including Monsanto, Rio Tinto, Posco, Exxon Mobil and funds with underlying investments in global commodity stocks. Commodity-focused MFs, however, can be extremely volatile and most funds generated negative returns in the first six months of 2010. They also attract more taxes than diversified equity funds. Since these funds have their underlying investments in global commodity stocks, they also carry exchange rate risks.
COPYRIGHT 2011 Asianet-Pakistan
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2011 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Publication:Pakistan & Gulf Economist
Date:Apr 10, 2011
Words:788
Previous Article:FOOD INFLATION.
Next Article:AUTO COMPANIES MAY LOSE COMPETITIVE ADVANTAGE.
Topics:

Terms of use | Privacy policy | Copyright © 2019 Farlex, Inc. | Feedback | For webmasters