Innovation is not just about the technological advancements and improved healthcare, it can be seen across various sectors globally that create opportunities for investors to enhance their capital growth.
The global economies are performing well amidst the COVID-19 pandemic as compared to the Indian economy, which is impacted due to the second wave of the virus. Experts have estimated that a third wave of the virus may affect the domestic markets. As a result, many investors want their investment portfolio to be more diverse to mitigate the risk of volatility. Thus, they are looking at international funds that include exposure to foreign equities.
Investors may consider investing in international funds passively; it offers benefit of geographical diversification. Such international funds invest in companies with exposure to larger markets and innovative business models adapting to the changing environment. The Indian markets have a lower correlation with the international markets; this reduces your overall portfolio risk.
Investing in international funds offers investors with several opportunities to invest in new age industries. This is mainly because many global companies hold robust moats and competitive advantage that some Indian companies lack.
Looking at the market scenario, several mutual fund houses introduced passively managed international funds with varying portfolio compositions and strategies. Kotak Mahindra Mutual Fund has launched Kotak Global Innovation Fund of Fund; it is an open-ended fund of fund investing in units of Wellington Global Innovation Fund or any other similar overseas mutual fund schemes/ETFs.
On the launch of this fund, Mr Harsha Upadhyaya President and CIO – Equity at Kotak Mahindra Asset Management Company said, “Global innovators are world-leading companies that control their own destiny, driving growth through innovation or having exposure to key secular trends. We believe that innovation can drive growth, independent of the global economic cycle. So if investors are looking to invest in a fund that helps them diversify their portfolio across sectors and geographies, the Kotak Global Innovation Fund of Fund can be the right fund for them.”
Table 1: Details of Kotak Global Innovation FoF
|Type||An open ended fund of fund investing in units of Wellington Global Innovation Fund or any other similar overseas mutual fund schemes/ETFs.||Category||Fund of Fund (Overseas)|
|Investment Objective||The primary investment objective of the scheme is to provide long-term capital appreciation by investing in units of Wellington Global Innovation Fund or any other similar overseas mutual fund schemes/ETFs. The Scheme may, at the discretion of the Investment Manager, also invest in the units/ shares of any other similar overseas mutual fund schemes/ETFs. It shall be noted 'similar overseas mutual fund schemes/ETFs' shall have investment objective, investment strategy, asset allocation and risk profile/consideration similar to those of Wellington Global Innovation Fund. However, there can be no assurance that the investment objective of the Scheme will be realized.|
|Min. Investment||Rs 5000/- and in multiples of Re 1/- thereafter. Additional Purchase Rs 1000/- and in multiples of Re 1/- thereafter.||Face Value||Rs 10/- per unit|
|Entry Load||Not Applicable||Exit Load||
|Fund Manager||Mr Arjun Khanna||Benchmark Index||MSCI All Country World Index TRI|
|Issue Opens:||July 08, 2021||Issue Closes:||July 22, 2021|
(Source: Scheme Information Document)
What will the Investment strategy for Kotak Global Innovation Fund of Fund be?
This scheme will predominantly invest in units of Wellington Global Innovation Fund and/or any other similar overseas mutual fund schemes/ETFs to achieve the investment objective of generating long-term capital appreciation.
The endeavour will be to follow the passive investment strategy for investments in overseas mutual fund with global investing approach. The underlying scheme is an equity fund that aims to provide capital growth by investing in innovative companies and secular trends across the world.
The underlying scheme, i.e. Wellington Global Innovation Fund portfolio, consist of 40-70 stocks and uses a bottom-up stock selection basis a score assigned by TIBR methodology (Trend, Innovation, Barriers and Risks). The TIBR methodology for stock selection focuses on companies that are Trendsetters in the markets, capable of Innovation, businesses with high entry Barriers and eliminate companies with high Risk factors.
It is actively managed and aims for investments in companies with automotive evolution, democratization of finance, artificial intelligence, e-commerce, healthcare innovation, technology, renewable energy, and target consumer preferences.
The underlying scheme will focus on drivers of innovation and trends based on fundamental analysis and valuation of the companies. In addition, considering the futuristic theme, the in-house proprietary research model will evaluate companies with ESG integration that assess management quality, which is the key to durability of business.
The following is list of Top 10 holdings and sectors of underling scheme by their weightage as of May 2021:
About the benchmark
MSCI ACWI Index is MSCI’s flagship global equity index, designed to represent performance of the full opportunity set of large-cap and mid-cap stocks across 23 developed and 27 emerging markets. As of November 2020, it covers more than 3,000 constituents across 11 sectors and approximately 85% of the free float-adjusted market capitalization in each market.
Being a Fund of Fund, this scheme will invest 95% of its assets in units of Wellington Global Innovation Fund and/or any other similar overseas mutual fund schemes/ ETFs. It will also invest up to 5% of its assets in Debt, Money market instruments in order to meet the liquidity requirement of the scheme.
Under normal circumstances, asset allocation will be as under:
Table 2: Asset Allocation of Kotak Global Innovation FoF
|Instruments||Indicative Allocation (% of assets)||Risk Profile|
|Units of Wellington Global Innovation Fund and/or any other similar overseas mutual fund schemes/ ETFs#||95||100||High|
|Debt & Money Market Instruments||0||5||Low to Medium|
#It shall be noted ‘similar overseas mutual fund schemes/ETFs’ shall have investment objective, investment strategy, asset allocation and risk profile/consideration similar to those of Wellington Global Innovation Fund.
(Source: Scheme Information Document)
Who will manage Kotak Global Innovation Fund of Fund?
Mr Arjun Khanna will be the dedicated fund manager for this scheme.
Mr Arjun Khanna is Fund Manager at Kotak Mahindra Asset Management Co. Ltd. and he has over over 13 years of experience out of which 12 years has been with Mutual Funds in Equity Research. Prior to this, he was associated with Kotak Mahindra Mutual Fund, Principal Mutual Funds and Citibank N.A. in his earlier stint.
Mr Khanna is a Bachelor of Engineering (Electronics) and has done his Masters of Management (Finance) from Jamnalal Bajaj Institute of Management Studies. He has done FRM and CFA from the CFA Institute. The other schemes he manages are Kotak Global Emerging Market Fund, Kotak Asset Allocator Fund, Kotak Pioneer Fund, and Kotak International REIT FOF. For foreign securities, Kotak Infrastructure & Economic Reform Fund, Kotak Bluechip Fund, Kotak Equity Hybrid Fund, Kotak Emerging Equity Fund, Kotak Equity Savings Fund, Kotak Small Cap Fund, Kotak Standard Multicap Fund, Kotak Debt Hybrid Fund, Kotak Equity Opportunities Fund, Kotak Banking and PSU Debt Fund, Kotak Bond Short Term Fund
Kotak Bond Fund, Kotak Corporate Bond Fund, Kotak Dynamic Bond Fund, Kotak Money Market Fund, Kotak Credit Risk Fund, Kotak Liquid Fund, Kotak Low Duration Fund, Kotak Floating Rate Fund, Kotak Medium Term Fund, Kotak Corporate Bond Fund, Kotak Savings Fund, Kotak Gilt Fund, Kotak Balanced Advantage Fund, Kotak Focused Equity Fund, and Kotak ESG Opportunities Fund.
Fund Outlook – Kotak Global Innovation Fund of Fund
The Kotak Global Innovation Fund of Fund will passively invest in units of Wellington Global Innovation Fund which aims for innovative companies globally such as Facebook, Alphabet (Google), Visa, Netflix etc. (USA), Astra Zeneca (UK), Aptiv (Ireland), Tecent holding etc. (China), and others.
This scheme offers investors with an opportunity to invest globally with exposure to disruptive innovative companies and secular trends with structural growth prospects. The fund provides with international allocation and diversification that may enhance investor’s portfolio.
Being a Fund of Fund, the performance of Kotak Global Innovation FoF will depend on the performance of the underlying fund and generate returns nearly in line with that of the underlying fund.
Although the fund offers an edge over the domestic challenges with global investing opportunities, it is prone to few risks such as geo-political and social situations of the countries this fund is investing in; including, currency risk, etc. This may affect the fund’s performance and therefore makes it a risky proposition.
If you wish to have international allocation to your portfolio by investing in this fund, ensure you have a high-risk tolerance, long investment horizon, and your investment objectives may align with the fund.
This article first appeared on PersonalFN here