The Indian markets at times have a low-to-moderate correlation with some international markets. This, therefore, reduces portfolio volatility and ensures suitable diversification, especially with developed markets. As an investor, you can benefit from having some exposure to international investments in innovative and unique companies across industries that are not available in the domestic market space.
Identifying future innovators can help generate relatively high returns, as investments in innovative companies usually reward disproportionately over the long term. Technology is gaining critical mass in innovations and as result, such companies are displaying attractive earnings. Innovative Tech companies have been consistently growing return on equity over the last 2 decades.
Several Indian fund houses have been aiming to launch international funds that provide retail and HNI investors with global exposure and international diversification in particular sectors or themes in developed markets. If you are considering investing in international markets, you may look at such mutual fund schemes, particularly the one focused on developed markets and innovative themes with the aim to diversify by taking the passive investment route.
DSP Mutual Fund has launched DSP Global Innovation FoF. It is an open-ended fund of fund scheme that will invest predominantly in units of global mutual funds schemes and ETFs that primarily invest in companies with innovation themes. The scheme provides you with the opportunity to invest in new-age industries and innovative companies that are backed by technological advancements and adapting to the change.
Table 1: Details of DSP Global Innovation FoF
| Type | An open-ended fund of fund scheme investing in Innovation theme. | Category | Fund of Fund (Overseas) |
| Investment Objective | The primary investment objective of the scheme is to seek capital appreciation by investing in global mutual funds schemes and ETFs that primarily invest in companies with innovation theme having potential for higher revenue and earnings growth. The Scheme may also invest a certain portion of its corpus in money market securities and/or money market/liquid schemes of DSP Mutual Fund to meet liquidity requirements from time to time. However, there is no assurance that the investment objective of the Scheme will be realized. | ||
| Min. Investment | Rs 500 and in multiples of Re 1/- thereafter. | Face Value | Rs 10/- per unit |
| SIP/STP/SWP | Available | ||
| Plans |
|
Options |
|
| Entry Load | Not Applicable | Exit Load | NIL |
| Fund Manager |
|
Benchmark Index | MSCI All Country World Index – Net Total Return |
| Issue Opens | January 24, 2022 | Issue Closes | February 07, 2022 |
(Source: Scheme Information Document)
The investment strategy for DSP Global Innovation FoF will be as under:
DSP Global Innovation FoF will invest predominantly in units of global active & passive funds, which primarily invest in companies with innovation themes having potential for higher revenue and earnings growth.
The scheme will allocate its assets to a few shortlisted underlying funds based on the evaluation framework (analysing qualitative and quantitative factors). The scheme will allocate about 30% of its corpus to iShares Semiconductor ETF and iShares NASDAQ 100 UCITS ETF. The balance 70% in four actively managed funds – Morgan Stanley US Insight Fund, BGF World Tech Fund, Nikko AM ARK Disruptive Innovation Fund, and Bluebox Global Technology Fund.
The investment strategy would largely be passive. The fund managers will monitor the tracking error of the scheme on an ongoing basis and seek to minimize it. The scheme may also invest a certain portion of its corpus in money market securities and/or money/liquid schemes of DSP Mutual Fund, in order to meet liquidity requirements from time to time.
Under normal circumstances, the Asset Allocation will be as under:
Table 2: Asset Allocation for DSP Global Innovation FoF
| Instruments | Indicative Allocation (% of net assets) | Risk Profile | |
| Minimum | Maximum | High/Medium/Low | |
| Units of Innovation funds as listed below | 95 | 100 | High |
| Money market securities and/or units of money market/liquid schemes of DSP Mutual Fund | 0 | 5 | Low to Medium |
(Source: Scheme Information Document)
The Scheme intends to invest in the following Innovation Funds:
| Sr No. | Name of the Underlying Fund | Inception Date of the Underlying Fund | *Performance of the fund (%) CAGR in USD terms | Performance of the respective index of the Underlying Fund (%) |
| 1. | iShares PHLX Semiconductor ETF | 10-July-2001 | 11.67 | 12.17 |
| 2. | BGF World Tech fund D2 USD | 10-Dec-2011 | 23.74 | – |
| 3. | iShares NASDAQ 100 UCITS ETF | 26-Jan-2010 | 21.03 | 21.29 |
| 4. | Baillie Gifford Worldwide Long term Global growth fund | 10-Aug-2016 | 32.10 (for Class B-Acc) |
13.50 |
| 5. | Nikko AM ARK Disruptive Innovation Fund | 29-Aug-2018 | 26.59 (for Class A) |
– |
| 6. | Morgan Stanley US Insight Fund | 29-Nov-2014 | 20.93 (of Z Shareclass) |
14.11 |
| 7. | Bluebox Global Technology Fund | 29-March-2018 | 31.37 | 31.04 |
Note: Performance Data as of November 30, 2021
*Since inception performance mentioned. However, in the case of Bluebox Global Technology Fund, the 1-year return is mentioned and it is as of December 31, 2021, as per the SID.
(Source: Scheme Information Document)
Apart from the above, the Scheme may, at the discretion of the Investment Manager, also invest in the units of other overseas mutual fund schemes having similar investment objectives, investment strategy, asset allocation etc. and which forms part of the Innovation theme. The cumulative gross exposure across all asset classes should not exceed 100% of the net assets of the scheme
About the benchmark
MSCI ACWI Index is MSCI’s flagship global equity index, designed to represent the performance of the full opportunity set of large-cap and mid-cap stocks across 23 developed and 25 emerging markets. As of June 2021, it covers more than 2,900 constituents across 11 sectors and approximately 85% of the free float-adjusted market capitalization in each market. The index is built using MSCI’s Global Investable Market Index (GIMI) methodology, which is designed to take into account variations reflecting conditions across regions, market cap sizes, sectors, style segments and combinations.
Who will manage DSP Global Innovation FoF?
Mr. Jay Kothari and Mr. Kedar Karnik will be the designated fund managers for this scheme.
Mr. Jay Kothari will be managing the overseas investment portion of this scheme. He holds a Bachelor in Management Studies (BMS) degree from Mumbai University and an MBA (Finance) – from Mumbai University and has over 16 years of experience in the financial services industry. He has worked with DSP Mutual Fund as Vice President in Equity Investments and a Product Strategist and Mumbai Banking Sales Head. and before that was associated with Standard Chartered Bank under the Priority Banking division.
At DSP Mutual Fund, Mr. Kothari currently manages DSP World Agriculture Fund, DSP World Gold Fund, DSP World Energy Fund, DSP World Mining Fund, DSP Small Cap Fund, DSP Focus Fund, DSP US Flexible* Equity Fund, DSP Equity Savings Fund, DSP India T.I.G.E.R. Fund (The Infrastructure Growth and Economic Reforms Fund), DSP Regular Saving Fund, DSP Equity Opportunities Fund, DSP Global Allocation Fund, DSP Natural Resources, and New Energy Fund, DSP Midcap Fund, DSP Top 100 Equity Fund, DSP Healthcare Fund, and DSP Value Fund.
Mr. Kedar Karnik holds MMS (Finance) and BE (Electronics & Telecommunications) degrees and has over 14 years of experience in the financial services industry. Before joining DSP Mutual Fund, he worked with Axis Asset Management Company Ltd. as Fund Manager – Fixed Income, HSBC Asset Management (India) Pvt. Ltd. as Fund Manager – Fixed Income, and Manager – Ratings at CRISIL Ltd.
At DSP Mutual Fund, Mr. Karnik currently manages DSP Overnight Fund, DSP Savings Fund, DSP Liquidity Fund, DSP Low Duration Fund, DSP US Flexible* Equity Fund, DSP Global Allocation Fund, DSP Arbitrage Fund, DSP Ultra Short Fund, DSP Floater Fund, and DSP Equity Savings Fund.
Fund Outlook – DSP Global Innovation FoF
DSP Global Innovation Fund of Fund aims to passively invest in a mix of global active funds and ETFs that, in turn, invest in innovation and technology-driven companies. The scheme will invest in units of these underlying schemes and generate parallel returns.
The underlying schemes have companies that have demonstrated higher growth and higher growth expectation. The scheme offers you, investors, an opportunity to invest globally with exposure to innovative and tech-driven companies with structural growth prospects. The fund provides the opportunity to allocate to international equities and diversify by taking the fund of fund route.
However, being a Fund of Fund, the fortune of DSP Global Innovation FoF will closely depend on the performance of the underlying schemes and generate returns nearly in line with that of the underlying funds. Although the fund offers an edge over the domestic challenges with global investing opportunities, it is prone to a few risks such as geopolitical and social situations of the countries this fund is investing in, plus subject to currency risk and other macroeconomic risks.
Currently, the rapid rise in cases of the new Omicron variant (the virus will continue to mutate further) and the US Federal Reserve’s plans of tightening their monetary policy poses a major risk to global economic growth. These, among many other factors, may affect the scheme’s performance, and the portfolio may face higher volatility in the near term. The scheme commands a high risk in the riskometer.
If you wish to have an international allocation to your portfolio by investing in this fund, ensure you have a high-risk tolerance, a long investment horizon of at least 5-7years, and your investment objectives align with the fund.
This article first appeared on PersonalFN here
