Axis Global Equity Alpha Fund of Fund: Aims to Capture Global Growth

Sep 08, 2020

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Axis Mutual fund has launched an overseas fund of fund, Axis Global Equity Alpha Fund of Fund. The fund will invest in Schroder International Selection Fund Global Equity Alpha, a fund that invests in companies across the globe.

Considering the volatility in Indian markets, Axis Mutual Fund is of the view that investors are losing out opportunities of investing in other global companies that are multiplayers across geographies. The Schroders International Selection Fund Global Equity Alpha is a highly globally diversified fund that invests in companies that are having a potential to reward investors handsomely due to its portfolio structure.

Hence Axis Mutual Fund launched Axis Global Equity Alpha Fund of Fund that will invest in a Schroder International Selection Fund Global Equity Alpha. Schroders is also part of the Joint Venture (JV) that owns Axis Asset Management Company Limited. One of the Schroders Group companies, Schroder Investment Management (Singapore) Ltd holds 25% stake in Axis Asset Management Company Limited.

What is a Fund of fund (FOF)?

As per regulations, a Fund of fund (FoF) is a scheme that will invest a minimum 95% of total assets of the scheme in the underlying fund/s. A FoF is a unique investment proposition because it is a mutual fund scheme that invests in schemes of other mutual funds offering a well-diversified product to reduce the volatility involved.

This modus operandi allows investors to hold a single product rather than directly investing in various regular mutual fund schemes to provide optimum returns from a portfolio of well researched funds.

The fund house is of the view that global investing has the following benefits and provides an opportunity to invest in companies and themes not available in India(Alphabet, Facebook, Amazon, are some of the notable companies)

Image 1: Benefits of Global investing

(Source: Axis Global Equity Alpha Fund of Fund Presentation)


Global markets are home to companies of a global stature with the kind of scale, customer base, network effect, and competitive moat that very few Indian companies can achieve and emulate in the near term.

While India holds the tag for fastest growing projected economy, almost all equity investment opportunities arising are in sunrise sectors unavailable on Indian exchanges.

However, given that it is an offshore fund, the risk of investing in foreign securities, i.e. exposure of dynamic exchange rate fluctuations and geo-political risk, makes it extremely risky.

[Read: Should You Opt For Offshore Funds to Reduce Portfolio Risk?]

Axis Global Equity Alpha Fund of Fund is a passively manged fund whose performance will be as per the underlying Global foreign fund and does not require active management.  The manager of such a fund buys stocks of the underlying fund and exits a certain stock only when the respective stock exits from the fund and is replaced by another one.

Therefore, it is suitable for all investors willing to take risk and looking to park their money into an overseas market for an investment time horizon of medium term to long term.

Table 1: Details of Axis Global Equity Alpha Fund of Fund

Type An open-ended fund of fund scheme investing in Schroder International Selection Fund Global Equity Alpha. Category Fund of funds- overseas
Investment Objective To provide long term capital appreciation by predominantly investing in Schroder International Selection Fund Global Equity Alpha, a fund that aims to provide capital growth by investing in equity and equity related securities of companies worldwide. The Scheme may also invest a part of corpus in debt, money market instruments and / or units of liquid schemes 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.
Min. Investment Rs 5,000 and in multiples of Re 1 thereafter Face Value Rs 10 per unit
Plans
  • Regular
  • Direct*
*default
Options
  • Growth option
  • Dividend Option – Dividend Payout and Dividend Reinvestment facility
Entry Load Not Applicable Exit Load
  • If redeemed / switched-out within 12 months from the date of allotment: -
    • For 10% of investment: Nil
    • For remaining investment: 1%
  • If redeemed/switched out after 12 months from the date of allotment: Nil
Fund Manager Mr Hitesh Das and Mr Sivakumar Benchmark Index MSCI World (Net TR)
Issue Opens: September 4, 2020 Issue Closes: September 18, 2020
(Source: Scheme Information Document)

How will Axis Global Equity Alpha Fund of Fund allocate its assets?

Under normal circumstances, the scheme's asset allocation pattern will be as under:

Table 2: AGEAFoF's Asset Allocation

Instruments Indicative Allocation (% of net assets) Risk Profile
Minimum Maximum High/Medium/Low
Units / shares of Schroder International Selection Fund Global Equity Alpha 95 100 Medium to High
Debt, Money market instruments and / or units of liquid schemes* 0 5 Low to Medium
Under normal circumstances, at least 95% of the Net Assets of the Scheme will be invested in Schroder International Selection Fund Global Equity Alpha, subject to the availability of Eligible Investment Amount and the terms of offer of Schroder International Selection Fund Global Equity Alpha.
Securitized debt
*Investment in Securitized debt (excluding foreign securitized debt), if undertaken, would not exceed 5% of the net assets of the Scheme.
Repo in Corporate debt securities
The Scheme may undertake repo transactions in corporate debt securities in accordance with the directions issued by RBI and SEBI from time to time. The gross exposure of the Scheme to repo transactions in corporate debt securities shall not be more than 5% of the net assets of the Scheme or such higher limit as may be specified by SEBI. Further, such investment shall be made subject to the guidelines which may be prescribed by the Board of Directors of the Asset Management Company and Trustee Company.
(Source: Scheme Information Document)

What will the Investment Strategy be?

The investment objective of the Axis Global Equity Alpha Fund of Fund is to provide long term capital appreciation by predominantly investing in Schroder International Selection Fund Global Equity Alpha, a fund that aims to provide capital growth by investing in equity and equity related securities of companies worldwide. The Scheme may also invest a part of its corpus in debt, money market instruments and/or units of liquid schemes 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.

The Scheme will be passively managed fund investing in predominantly in unit / shares of Schroder International Selection Fund Global Equity Alpha, based on the subscriptions and redemptions received in the Scheme and within the overall limits specified by SEBI/RBI.

[Read: Passively Managed Funds Can Help You Earn Better Returns Amidst Market Turbulence]

About Schroder International Selection Fund Global Equity Alpha :

The Fund invests at least two-thirds of its assets in equity and equity related securities of companies worldwide. 'Alpha' funds invest in companies in which the manager has a high conviction that the current share price does not reflect the future prospects of that business. As the Fund is index unconstrained, it is managed without reference to an index.

The managers seek to identify companies that they believe will deliver future earnings growth above the level expected by the market typically on a 3-5-year horizon (we term this as 'a positive growth gap').

The Fund is managed with reference to material environmental, social, and governance factors. This means issues such as climate change, environmental performance, labour standards or board composition that could impact a company's value may be considered in the assessment of companies.

Top ten holdings

(Source: Axis Global Equity Alpha Fund of Fund Presentation)


Who will manage the scheme?

Axis Global Equity Alpha Fund of Fund will be co-managed by Mr Hitesh Das and Mr Sivakumar. The overseas equity part will be managed by Mr Hitesh Das and the debt portion will be managed by Mr Sivakumar.

Mr Hitesh Das has to his credit a B.Tech, M. Tech, followed by PGDM. He manages investments under ADRs/GDRs and other foreign securities at the fund house.

He has a work experience of over a decade as an Equity Research Analyst, wherein he was associated with Yes Bank as a Risk Analyst for a year. Later he joined Ebusinessware (India) Pvt. Ltd as an Equity Research Analyst for a brief term. Thereafter he joined Credit Suisse Securities (India) Pvt. Ltd. as an Equity Research Analyst for 1.5 years, followed by his association with Barclays Securities India Pvt. Ltd as Equity Research for 4 years before joining Axis Mutual Fund.

Some of the other Equity schemes he co-manages include Axis Growth Opportunities Fund and Axis ESG Equity Fund

Mr R. Sivakumar holds a B. Tech degree from IIT Madras and PGDM from IIM, Ahmedabad. He has a tremendous work experience of fixed income research.

Currently, he is the Head of Fixed Income & Products at Axis Asset Management Co. Ltd. He has been associated with Axis Asset Management from September 2010. Prior to joining Axis AMC, he has worked with Fortis Investment Management (India) Pvt. Ltd. (previously known as ABN AMRO Asset Management) as a Chief Operating Officer. Some of the previous companies he has worked as a Fund Manager include Sundaram Asset Management Company Ltd besides Fortis Investment Management (India) Pvt. Ltd and worked as a Research Analyst at Zurich Asset Management (India) Private Ltd.

Some of the other Debt schemes he manages are Axis Dynamic Bond FundAxis Children's Gift FundAxis Triple Advantage FundAxis Dynamic Equity FundAxis Equity Saver FundAxis Equity Hybrid Fund, and Axis Retirement Savings Fund.

The outlook for Axis Global Equity Alpha Fund of Fund

Axis Global Equity Alpha Fund of Fund is launched with an intent to generate returns for investors by investing in a diversified global equity fund, Schroder International Selection Fund Global Equity Alpha.

Schroder International Selection Fund Global Equity Alpha is constructed as per the Schroders' five pillars of value creation. And, follows a stringent investment process that involves filtering the universe of global stocks to identify the best ideas.

Image 2 & 3: Five pillars of Value creation & Investment Process

Graph 2 Graph 2
(Source: Axis Global Equity Alpha Fund of Fund Presentation)


But considering the top holdings of the portfolio of Schroder International Selection Fund Global Equity Alpha, the Axis Global Equity Alpha Fund of Fund is investing mainly in the US market.

Currently the US markets is bound to witness the extreme volatility due to the heavy impact of global pandemic and the upcoming presidential elections. So, the performance of the Axis Global Equity Alpha Fund of Fund hinges on the performance of the Schroders Schroder International Selection Fund Global Equity Alpha as there is extreme geopolitical and currency risk involved and entails high investment risk.

Graph: Composite performance of Schroder International Selection Fund Global Equity Alpha

(Source: Schroder Equity Alpha get fund document and Schroder Equity Alpha)


​Therefore, whether to sign up for this fund or avoid will depend on your preference, suitability, and risk appetite as an investor.

PS: The last few years have not been among the best for equity mutual funds. While most funds have underperformed or are struggling to match the returns of the benchmark, there are few funds that have the potential to constantly generate alpha for its investors. And we have identified five such high alpha generating funds, in our latest report 'The Alpha Funds Report 2020'. Do not miss our latest research finding. Get your access to this exclusive report, right here!

Warm Regards,
Aditi Murkute
Senior Writer

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