How to choose ‘international' funds

I am holding the following mutual funds: Birla Sunlife International Equity Plan A. ICICI Pru Indo Asia Equity, Tata Indo Global Infrastructure. All these funds were bought during their NFOs in October/November 2007.Kindly advice if I should continue to hold, or switch to another mutual fund.


You have not stated if these are the only mutual funds you hold. Given the lack of information on your other existing holdings if any, the funds we suggest may duplicate your portfolio. Do keep this fact in mind while acting on our suggestions.

Your fund holding suggest the following: one, you appear to have placed much faith the ‘New Fund Offer' (NFO) route, given that all the three funds have been invested through NFOs. Two, you seem to favour international funds, given that all of them have a mandate to invest at least a part of the assets overseas.

Even if you do hold other diversified mutual funds, it is not necessary for you to hold too many international funds; given that their primary objective is to diversify your holding. All the three funds that you hold have a limited track record, with the Tata fund being close-ended for three years.

How to choose

Before we move on to rejig your portfolio, here are a few points that may come in handy when you go shopping for international funds.

One, does the fund house have experience in international investing? Typically, international fund houses such as Franklin Templeton or Fidelity tend to have their international research teams that would aid them in investing money overseas. A few others such as ICICI or Principal invest (using the feeder route) in to their joint venture partner's funds available overseas.

Two, do you have conviction in the markets that these funds are mandated to invest? For example, there are funds that would invest only in Asia-Pacific markets, some others that seek to invest in Latin American markets and few others in say international energy or mining companies. As an investor, you should have conviction as to the potential that these markets/themes hold.

Three, while those that invest directly in international stocks would provide the monthly portfolio of stocks, there are which sue the feeder the feeder route, which will not give the details of the parent fund's portfolio. As an investor, would you be comfortable with the lack of information or willing to look up for the parent fund's fact sheet yourself.

Four, would the theme offered by the international fund, hold better potential in India. For instance, it may make sense to invest in a gold mining/alternative energy theme overseas, given the limited investment universe for such themes in India. On the other hand, a theme such as infrastructure may hold large potential locally than in developed countries.

Five, you should be willing to adopt an active profit booking strategy in international funds, especially those related to emerging markets.

Portfolio

Now coming to your portfolio, we suggest you exit Tata Indo-Global Infrastructure once the lock-in period is over. While the fund would only invest up to 35 per cent in international stocks, you would be better-off reaping gains from the local infrastructure theme.

Birla Sunlife International Equity Plan A invests 100 per cent in overseas stocks and has a diversified portfolio. While its one-year returns is far from encouraging, it has picked up pace in the last 6 months. Hold the fund and observe performance over the next two quarters. Compare the fund with other international schemes.

Templeton India Equity Income would be a good value-oriented international fund to hold. Its track record over the last three years is also inspiring. You can exit ICIC Pru Indo Asian Equity and instead move to the above fund.

Do not hold over 10 per cent of your mutual fund portfolio in international funds. If you still hold conviction in the gold-run, you can consider investing in gold mining funds such as AIG World Gold or DSP BR World Gold. The latter has not fully benefited from the the kind of re-rating/rally that gold has experienced in recent times.

They are however, high-risk investments, given that both gold price trends as well as stock market movements would influence them.

International funds must be viewed as a diversification option for your portfolio.