Global investing as a theme has picked up in a big way, with Indian investors pouring money in funds offering Global diversification. Global funds help investors tap new themes, diversification, and investing in companies whose products or services are consumed globally (overcoming home bias).
As markets around the Globe perform differently each year, diversification to international markets’ may allow investors’ portfolios to deliver better returns than domestic markets. In the current environment, it may be beneficial for investors to invest some portion of their portfolio in global markets, offering growth opportunities in various emerging sectors and themes. International diversification will help investors reduce the overall portfolio risk and generate better risk-adjusted returns.
India is consistently one of the world’s largest importers of Oil and Gold. Both the commodities are denominated in dollars, thus making their prices in the Indian economy sensitive to movement in INR. Investment in securities related to the oil and gold segment may provide investors to benefit from their price movements. Global Economies have expanded their balance sheets manifold in the last decade, thereby increasing liquidity. This may help improve the economic activity and may result in higher inflation, thus creating a conducive environment for Metal & Energy.
ICICI Prudential Mutual Fund has launched ICICI Pru Strategic Metal and Energy Equity Fund of Fund. It is an open-ended fund of fund scheme investing in Units/shares of First Trust Strategic Metal and Energy Equity UCITS Fund.
Table 1: Details of ICICI Pru Strategic Metal and Energy Equity FoF
|An open-ended fund of fund scheme investing in Units/shares of First Trust Strategic Metal and Energy Equity UCITS Fund.
|Fund of Fund (Overseas)
|ICICI Prudential Strategic Metal and Energy Equity Fund of Fund (the Scheme) invests in the units/shares of First Trust Strategic Metal and Energy Equity UCITS Fund. The Scheme may also invest a certain portion of its corpus in domestic debt or money market securities and/or debt mutual fund schemes/liquid schemes of domestic mutual funds, including that of ICICI Prudential Mutual Fund, in order to meet liquidity requirements from time to time. However, there can be no assurance that the investment objective of the Scheme will be realized.
|Rs 1,000/- and in multiples of Re 1/- thereafter. Additional Purchase Rs 500/- and in multiples of Re 1/- thereafter.
|Rs 10/- per unit
|Ms Priyanka Khandelwal
|NYSE Arca Gold Miners Index and the S&P Oil & Gas Exploration & Production Select Industry Index
|January 17, 2022
|January 31, 2022
(Source: Scheme Information Document)
The investment strategy for ICICI Pru Strategic Metal and Energy Equity FoF will be as under:
ICICI Pru Strategic Metal and Energy Equity FoF will invest predominantly in units/shares of First Trust Strategic Metal and Energy Equity UCITS Fund. The scheme will mirror the performance of the underlying scheme to generate parallel returns, subject to tracking errors.
The underlying scheme will pursue an actively managed investment strategy. The fund will seek to achieve its objective primarily through investment in a diversified portfolio of equity securities related to gold and oil, listed or traded on regulated markets worldwide.
The investment manager of the underlying scheme will identify the potential universe of gold and oil stocks to invest in by screening the equity securities issued by companies deriving a substantial part of their income from or having a substantial portion of their assets in gold and oil-related sectors and industries and which may include companies involved in mining, exploration, and production of gold and oil. The endeavour is to create a diversified portfolio by including the largest gold and oil stocks in the investment universe by reference to market capitalization.
The underlying scheme’s portfolio will consist of two ‘sleeves’ of up to 150 stocks each, one comprising gold stocks and the other comprising oil stocks. Allocate 50% of capital to the gold portfolio and 50% of the capital to the oil & gas portfolio.
A small portion of ICICI Prudential Strategic Metal and Energy Equity FoF may also invest a certain proportion of its corpus in debt, money market securities, debt mutual fund schemes/liquid schemes to meet liquidity requirements from time to time.
Under normal circumstances, the asset allocation will be as under:
Table 2: Asset Allocation for ICICI Pru Strategic Metal and Energy Equity FoF
|Indicative Allocation (% of net assets)
|Units/shares of First Trust Strategic Metal and Energy Equity UCITS Fund
|Medium to High
|Debt, Money market securities, debt mutual fund schemes/liquid schemes*
|Low to Medium
(Source: Scheme Information Document)
About the benchmark
The NYSE Arca Gold Miners Index is a modified market capitalization-weighted index comprised of publicly traded companies involved primarily in mining gold and silver. The S&P Oil & Gas Exploration & Production Select Industry Total Return Index is an Index that comprises stocks in the S&P Total Market Index that are classified in the GICS oil & gas exploration & production sub-industry, so it includes large, mid, and small-cap stocks.
Who will manage ICICI Pru Strategic Metal and Energy Equity FoF?
Ms Priyanka Khandelwal will be the designated fund manager of the scheme.
Ms Priyanka Khandelwal is a Chartered Accountant, Company Secretary, and B.Com graduate. She has joined ICICI Prudential Asset Management Company Limited in October 2014 and has over 5 years of experience. At ICICI Prudential AMC, Ms Khandelwal currently manages ICICI Prudential US Bluechip Equity Fund, ICICI Prudential Global Stable Equity Fund (FOF), and ICICI Prudential Nasdaq 100 Index Fund.
Fund Outlook – ICICI Pru Strategic Metal and Energy Equity FoF
ICICI Pru Strategic Metal and Energy Equity FoF will invest in units of First Trust Strategic Metal and Energy Equity UCITS Fund, which is a global fund investing in equity securities of companies related to gold and oil which are listed or traded on regulated markets worldwide. The fortune of the scheme will depend on the performance of the underlying scheme, subject to tracking errors.
The scheme provides Indian investors with an opportunity to invest in a strategy that focuses on the top two imported commodities in India, i.e., oil and gold. It offers global exposure and provides diversification by taking exposure to stocks whose performance is dependent on the movement in prices of oil and gold.
The scheme will aim to find potential opportunities around the world in the metal and energy segment to generate optimal returns. The metal and energy strategy of the underlying scheme can provide investors a hedge against potential spikes in oil and gold prices due to movement in exchange rates of INR vs USD.
However, being a fund of fund, this scheme will be passively managed, and it will limit the fund managers’ involvement. The scheme will indirectly invest a major portion of its portfolio in international markets attracting geo-political and currency risks. In addition, the scheme aims to follow a robust investment approach towards the metal and energy theme, which makes it prone to concentration risk.
The looming threat of the Omicron variant and the US federal reserve’s announcement of tightening of monetary policy may also influence the performance of oil and gold price movements. These factors, among many others, could have a bearing on the scheme’s performance and may negatively affect any downtrend in the focused theme.
Thus, the scheme is suitable only for investors with a very high-risk appetite and a long investment horizon of at least 5-7 years. You must ensure that your investment objectives are well-aligned with the fund.
This article first appeared on PersonalFN here