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Investors can consider exiting fund-of-fund scheme ING Global Real Estate fund.
With the rupee depreciating 24 per cent against the dollar in the last one year, international funds have seen a sharp increase in their short-term returns.
Underperformers such as ING Real Estate Securities Fund, too, have gained in the process, thus bringing their return scorecard since inception to the positive territory. With an annual return of 5.7 per cent since starting out in December 2007, the fund outperformed local benchmark indices.
ING Global Real Estate is an open-end fund-of-fund which invests in ING Global Real Estate Securities Fund. The parent fund invests in stocks of property developers across the globe.
Strategy
Investors who entered the fund especially at the time of its NFO may consider exiting the fund.
While the fund’s underperformance buttresses our recommendation, the sharp fall in the rupee has provided an opportunity for the fund to improve its NAV thus providing a window to exit for those who were in losses. With the rupee gaining ground in recent times, the return scenario may not look attractive for long.
As is the case with local thematic funds, ING Global Real Estate fund too requires active tracking of the real-estate scenario.
This may be challenging for investors, given that property market performance varies across the globe. The volatility in owning theme funds, together with currency swings, enlarges the investors’ risk.
If investors originally bought the fund for diversification purpose, they will be better off moving to more diversified international funds such as Templeton India Equity Income.
Note that capital gains tax will be applicable as these funds are treated as debt schemes .
Performance
ING Global Real Estate struggled to perform since its inception. Until late 2011, the fund’s NAV remained below its face value of Rs 10, underperforming its benchmark.
High exposure to US real-estate stocks and the muted property price scenario there appear to have been the causes for such underperformance.
The fund could not therefore capitalise on the sharp rally witnessed in 2009 across various markets. Between April 2009 and March 2010, for instance, the fund returned 51 per cent. The fund’s benchmark S&P BMI World Property index returned 63 per cent (in dollar terms) during this period.
That the rupee appreciated from Rs 50 to 44 levels over this period did not help returns in rupee terms.
In India, broad index CNX 500 delivered 85 per cent over this period. In the subsequent two fiscals up to March 2012 too, the fund underperformed its benchmark.
While latest data on the benchmark is not available, a comparison with another popular index, Citigroup World Property Index, suggests that the domestic fund managed positive returns as against the negative 8 per cent compounded annually by the World Property index. The real estate index performance also suggests that property market returns remain lacklustre.
The fund also witnessed erosion in NAV since its inception. From over Rs 200 crore, assets under management dwindled to Rs 44 crore in June 2012.
Portfolio
As it is a fund of fund, the local fact sheet does not disclose the portfolio of investments.
A look at the global fund’s portfolio suggests that as of March 2012, close to half of the assets under management were invested in US securities, including real-estate investment trusts. A fourth was invested in Japan and Hong Kong. The fund’s NAV is Rs 12.9.
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