Monday, February 11, 2008

Gem Gaze - Fund of Funds

Gem Gaze
A Balanced Diet?
Here is a genre of funds that serves you asset allocation and personalised portfolio solution against the backdrop of your long-term financial goals on a platter! The logic is hard to beat. Fund of Funds claim that it is difficult for one fund to maintain a top quartile performance over long periods of time. Different funds behave differently under various market conditions. In the current market, the variance between the best and worst equity funds is 60 per cent. Fund of Funds seek to eliminate these issues by giving access to the best performers through one scheme. By investing in the best of mutual funds and having the flexibility of market capitalisation positioning, they claim to be in a position to deliver superior returns and consistent performance.
Fund of Funds, introduced by Franklin Templeton Mutual Fund in October 2003, are less popular with Indian investors. Less than a third of the Fund houses offer them. Some are outward-looking, scouting for healthy menu plans, while some others are inward-looking, resorting to navel gazing that narrows your investment universe and hampers your returns.
Franklin Templeton India Life Stage Fund of Funds
Launched in November 2003, FT Life Stage Fund of Funds are asset allocation funds suitable for investors of different age groups. They rebalance at half-yearly intervals to maintain a defined allocation. The first four FOFs 20s, 30s, 40s and 50s Plan invest in these FT Funds -Franklin India Bluechip, Franklin India Prima, Templeton India Growth Fund, Templeton India Income Fund, Templeton India Income Builder Fund - in different proportions. For instance, the 20s Plan invests 80% in equities and 20% in debt while the 50s plan invests 20% in equities and 80% in debt. The 50s Floating Plan invests 80% in Templeton Floating rate Income Fund. The 40s plan followed by the 20s plan have been giving decent risk-adjusted returns, with one-year reurns of the above-mentioned plans hovering around 14-16%. But the rigid portfolio break-up and defined schemes curtail the discretionary powers of the fund manager.
Prudential ICICI Advisor Series
Launched in Nov 2003, Prudential ICICI Advisor Series offers five FoFs with varying equity and debt exposure. The range starts with a 'Very Cautious' plan that has no equity exposure and invests in cash and money market funds. At the other extreme there is the 'Very Aggressive' plan that invests 90 to 100 per cent of its corpus in equity. In between lie the 'Cautious', 'Moderate' and 'Aggressive' plans, each with a larger equity exposure than the preceding fund. ICICI Prudential Power, ICICI Prudential Growth Plan, ICICI Prudential Infrastructure, ICICI Prudential Emerging Star and ICICI Prudential Dynamic Plan are the funds that figure in the FoF plans in varying proportions. The one-year return of the very aggressive plan is a modest 16.15%.
Birla Asset Allocation Plans
Birla mutual fund launched its FOF, the Birla Asset Allocation Plan, in January 2004. The scheme provides four different plans - Aggressive plan, Moderate plan, Conservative plan and Dynamic Debt Plan each having separate asset allocation. It has a floating portfolio mix and freedom to choose any of the Birla Sunlife schemes. With a one-year return of 16.22%, the performance of the moderate plan supersedes that of the aggressive plan whose return during the same period is only 15.65%.This can be attributed to the choice of loss-making schemes such as Birla New Millenium – the Aggressive plan has a higher proportion of this fund compared to the moderate plan which has a higher proportion of the better performing Birla Dynamic Bond Fund.

Kotak Equity Fund of Funds
Kotak Equity Fund of Funds, launched in July 2004 is an open-ended Fund of Funds scheme that invests 90%-100% in diversified equity schemes and rest in liquid schemes across multiple fund houses. The portfolio of the scheme is well-diversified across seven equity based schemes. Kotak 30, SBI Magnum Equity, Birla Sun Life Frontline Equity Fund, Tata Pure Equity and Birla Midcap are the top five holdings, which contribute 83% to the total portfolio. Software services, capital goods, telecom and banks are among the top sectors in the overall portfolio of mutual funds held by Kotak Equity FoF. Looking at the overall portfolio it is diversified across large number of sectors providing investors the benefit of two-tier diversification. And since its investments are spread over seven equity funds, no single stock accounted for over 3.5 per cent of the fund's overall portfolio. What a diversification! The fund's return for the last one year has been on the lower side at 22.9% as against the category average of 23.64%. However, for the last one month it has outperformed its peers like ICICI Prudential Aggressive Plan and FT India Life Stage Fund of Funds The 20s Plan, reporting a return of 6.64% better than the category median of 5.64%.
Fidelity Multimanager Cash Fund of Fund
Launched in January, 2006, Fidelity Multimanager Cash Fund of Fund is the first liquid fund of fund in the country. It invests in cash funds or ultra short-term debt funds like HSBC Cash Institutional Plus (20%), ICICI Pru Liquid Super Institutional Plan (20%), HDFC Cash Mgmt Savings (20%), Principal CM - Liquid Institutional Premium Plan (20%) and Cash (20%). It has earned a one-year return of 7.78%, above the category average of 7.5%.
OptiMix Equity Multi Manager Fund of Funds
This 3 year close-ended scheme, launched in October, 2006, has invested in equity funds of various fund houses like Birla Sunlife Equity, DSPML Top 100 Equity, Sundaram BNP Paribas Select Focus, Reliance Growth and JM Emerging Leaders. It has earned a return of 17.42 % in the past one year.

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