Axis Global Equity Alpha Fund of Fund NFO: A review

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Axis Mutual Fund is launching a New Fund Offer (NFO) which will invest in global equities. The NFO is a fund of fund investing in Schroder International Selection Fund Global Equity Alpha. Schroder is one of the leading Asset Management Companies (AMC) of the world. The underlying fund, Schroder International Selection Fund Global Equity Alpha was launched in 2005.

Why invest in Global Equities?

Most investors have a bias of investing only in their home countries. 99.8% of India’s equity mutual fund AUM is invested in domestic equity funds (AUM of domestic equity MFs as a % of total equity MF AUM of mutual fund industry, source: MFI Explorer). Investing only in domestic equities not only exposes you to single country risk, it is also a big opportunity loss in terms of exposure to growth opportunities globally.

Exposure to growth / opportunities

Though India is projected to be one of the fastest growing economies of the world, most of the mega-trends or very large investment opportunities are not available in Indian stock market. Most of these mega-trends are in sunrise sectors e.g. consumer internet (Alphabet, Facebook), e-commerce (Amazon, Alibaba) etc which are not available in India. Indian companies still do not have the kind of scale, global customer base, network effect and competitive advantage which companies of global stature e.g. Global Brands (Adidas, Nestle), Payments (Visa, MasterCard) have. Some of the large global companies were able to grow their earnings at 20 – 70% CAGR over the last 5 years compared to just 2% EPS CAGR for Nifty 50 over the same period (Source: Bloomberg, National Stock Exchange as on 31st December 2019, Past Performance may or may not be sustained in the future. Above stocks may or may not be part of the portfolio. Portfolio allocation is based on prevailing market conditions and is subject to changes depending on the fund manager’s view of the markets).

Diversify Risks

Different markets have different risks. Among the large markets, India is one of the most volatile equity markets, while developed markets have lower risk. There is low correlation of returns of different market. Investing in global equities can diversify risk considerably and bring stability to your portfolio.

Risk Adjusted Returns

Diversification with global equities improves risk adjusted returns. A portfolio comprising of 70% Domestic Equity (Nifty 50) and 30% global equity (MSCI World Index) was able to outperform both Nifty and MSCI World Index over the period from 31st December 2008 to 31st March 2020 (Source: Bloomberg, Returns are in INR, Period: 31st Dec 2008 to 31st Mar 2020. Past performance may or may not be sustained in the future).The volatility of the portfolio is also lower than that of the individual indices (Disclaimer: Volatility is depicted as Standard Deviation of daily returns for 10 years. Past performance may or may not sustained in future).

Impact of FX rate

The exchange rate situation of the INR is also a good reason to diversify into global equities. Over the past several years INR has been declining and may continue to decline in the near to medium term. Over the past 10 years, INR depreciation itself would have contributed a significant portion of Rupee returns from global equity. However, currency impact should just be one consideration for investment in global equities. Risk of equity as an asset class is much more than currency risk.

About Schroder International Selection Fund Global Equity Alpha

The investment philosophy of stock selection of this global fund is to focus on unanticipated growth. The fund seeks to exploit three persistent inefficiencies in the market:-

Markets fail to look far enough ahead when appraising the earnings power of companies

Markets extrapolate historic growth and fail to correctly interpret catalysts that change the trajectory of growth

Markets over-react to short term news flow

About the Axis Global Equity Alpha Fund of Fund

The NFO will be open for subscription from 4^th to 18^th September 2020

NFO is a fund of fund with Schroder International Selection Fund Global Equity Alpha being the underlying scheme

Minimum application amount will be Rs 5,000 and multiples of Re 1 thereafter

Mr Hitesh Das and Mr R. Sivakumar are the fund managers of this scheme

This scheme is suitable for investors looking for capital appreciation and diversifying single country risk through exposure to global equities

Investors need to have high risk appetite for investing in this scheme

Investors should consult with their financial advisors about the suitability of the scheme for their specific financial needs before investing.

Download Scheme information Document

Download Key Information Memorandum

Download Leaflet

Disclaimer: This article represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management Company Limited, its Directors or associates shall be liable for any damages including lost revenue or lost profits that may arise from the use of the information contained herein. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s). Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC). Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.

Past performance may or may not be sustained in the future.

Note - Investors will be bearing the recurring expenses of the Scheme in addition to the expenses of the scheme in which Fund of Funds scheme makes investment.

Stock(s) / Sector (s) / Issuer(s) mentioned above are for illustration purpose and should not be construed as recommendation.

Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.