DSP BlackRock US Flexible Equity Fund

An open ended Fund of Funds scheme investing in a US equity fund

Summary

Type	Open-ended Equity scheme	Benchmark Index	Russel 1000 Index
Min. Investment: Additional Investment:	Lump sum -> Rs 5,000 & in multiples of Re 1 thereof Systematic Investment Plan (SIP) - > Rs 500 Rs 1,000 & in multiples of Re 1 thereafter	Face Value	Rs 10
Entry Load	Nil	Exit Load	For redemption / switch-out, less than 12 months from the date of allotment - > 1.00% For redemption / switch-out, on or after completion of 12 months from the date of allotment - Nil
Issue Opens	July 17, 2012	Issue Closes	July 31, 2012

 

Investment Objective*

The primary investment objective of the Scheme is to seek capital appreciation by investing predominantly in units of BlackRock Global Funds US Flexible Equity Fund (BGF - USFEF). The Scheme may, at the discretion of the Investment Manager, also invest in the units of other similar overseas mutual fund schemes, which may constitute a significant part of its corpus. The Scheme may also invest a certain portion of its corpus in money market securities and/ or money market/liquid schemes of DSP BlackRock Mutual Fund, in order to meet liquidity requirements from time to time.

However, there is no assurance that the investment objective of the Scheme will be realized.

 

(Source: Scheme Information Document)

 

Is this fund for you?

DSP BlackRock US Flexible Equity Fund (DBUFEF) is a new offering in the fund of fund product category of DSP BlackRock Mutual fund. DBUFEF focuses on investing predominantly in units of BlackRock Global Funds US Flexible Equity Fund (BGF - USFEF) – herein the underlying fund. Thus the fund (i.e. DBUFEF) provides access one of the largest equity markets in the world – the US, (on the basis of market capitalisation) which has companies who have depicted huge innovation and have led many global trends and investment themes.

DBUFEF imbibes a flexible investment approach, as its underlying fund signifies that the investment manager will have the flexibility to either invest in growth or value investment characteristic securities, depending upon what the market outlook warrants.

It is noteworthy that, at the discretion of its fund manager DBUFEF could also invest in similar overseas mutual fund units that have investments objectives, investment strategy and risk profile similar to that of its underlying scheme; which may constitute to be a significant part of its corpus. Moreover, in order to meet the liquidity requirements the fund could also invest in money market securities and / or money market/liquid schemes of DSP BlackRock Mutual Fund.

The fund in order to benchmark its performance will use Russell 1000 Index, which measures the performance of large cap segment of the US equity universe, and represents approximately 92% of the US market.

 

Portfolio Strategy

DBUFEF’s portfolio thus from the above, will consist of mainly units of BGF – USFEF, and similar overseas mutual fund units that have investments objectives, investment strategy and risk profile similar to that of its underlying scheme.

BGF – USFEF, the underlying fund will either follow a either a growth or value style of investing depending upon what the market outlook warrants. At present, as per the portfolio as on May 31, 2012 BGF – USFEF’s has total 107 stocks, of which the top-10 holdings are largely from technology, energy, healthcare and consumer discretionary sector. BGF – USFEF constructs its portfolio on the basis of BlackRock’s quantitative and fundamental investing.

As far as the allocation of assets is concerned, DBUFEF allocates them as under:

Instruments	Allocation Range (%)
	Minimum	Maximum
Units of BGF – USFEF# or other similar overseas mutual fund scheme(s)	95	100
Money market securities and / or units of money market liquid schemes of DSP BlackRock Mutual Fund	0	5

# In the shares of BGF – USFEF, an Undertaking for Collective Investment in Transferable Securities (UCITS) III fund
(Source: Scheme Information Document)  

Fund Manager Profile

DBUFEF will be managed by the duo, Mr. Mehul Jani and Mr. Laukik Bagwe.

Mr. Mehul Jani joined DSP BlackRock Investment Managers in October 2008, as an analyst in the firm's equity investment team, and presently co-manages DSP BlackRock Natural Resources and New Energy Fund (since June 2010) and DSP BlackRock Focus 25 Fund (since June 2010). Prior to joining DSP BlackRock Investment Managers, Mr. Jani was previously with Morgan Stanley Plc, London (from September 2004 to May 2008) as an Associate, working with structured product valuations and fund derivatives. Mr. Jani has to his credit a Master’s degree in Banking and International Finance and is a CFA charter holder. Mr. Jani currently holds over 7 years of cumulative experience in the mutual fund industry.

Mr. Laukik Bagwe is a fund manager for fixed income investments at DSP BlackRock Investment Managers. He joined the firm in November 2007 and presently co-manages DSP BlackRock Liquidity Fund and DSP BlackRock Floating Rate Fund. Prior to joining DSP BlackRock Investment Managers, Mr. Bagwe worked with Derivium Capital & Securities Pvt. Ltd. (from November 2003 to October 2007) as the Head of Fixed Income Trading and Birla Sunlife Securities Ltd. (from September 2003 to November 2003) as a Manager. Mr. Bagwe has to his credit a Bachelor’s degree in Commerce along with a PGDBA (in Finance), and holds over 11 years of experience in in debt broking.

US economy outlook and Markets:

After recording a stunning growth in the fourth quarter of 2011, real GDP of the US has witnessed a slump in growth rate (1.9% in the first quarter of 2012). For the month of June 2012, their manufacturing sector too has reported shrinkage for the first time in the last three years, as new orders tumbled due to gloom clouds surrounding the global economy. The Index of National Factory Activity for June 2012 (data released in July 2012) has fallen to 49.7 from 53.5 in the month before, thereby missing expectations of 52.0. It is the first time since July 2009 that the index has fallen below the 50.0 mark (which demarcates expansion and contraction), and thus now it seems that economic recovery has not only slumped, but also fragile.

Moreover, the over-reliance on increasing debt ceiling, has led to the economy’s debt-to-GDP ratio too balloon at 103% until last year. It is noteworthy that in the last 71 years U.S. Congress has raised the debt ceiling 102 times, and in the last 3 decades there has been a 92% increase – rather aggressive and absurd. In turn this debt conundrum is now also putting pressure on the fiscal deficit. The US still continues to stifle with stiff unemployment rate (8.2% in June 2012) as well, which is certainly a worrisome factor for the US Government.

The consumer confidence in the US too has declined from 64.9 in May 2012 to 62 last month. Likewise, although inflation has dropped US consumers have cut spending thereby indicating dampened mood in the US economy, which is also applying descending pressure on the US equity markets. Dampening the mood further the International Monetary Fund (IMF) too has revised its economic growth forecast to 3.9% in 2013, from the earlier estimates of 4.1%.

Yes, in the recent past the US has reflected strength, but with aforesaid economic events, the US equity markets have been under downward pressure. Moreover, the economic headwinds from Euro zone will pave the path for the US economy and markets, and how it is trended is yet to be seen.

 

Fund Outlook

Though DSP BlackRock US Flexible Equity Fund would help Indian investors diversify their portfolio; the real benefit of the diversification is questionable. The world has not decoupled and equities across the globe still move in tandem, although the degrees vary. In the current economic scenario the underlying fund - BlackRock Global Funds US Flexible Equity Fund has exposure to the following risks:
 

• Impeded and fragile economic recovery in the US
• High level of unemployment rate
• Chances of a fiscal tightening in 2013, as spending cut takes effect
• Cut in US consumer spending, due to de-leveraging by US households
• Worsening Euro zone crisis which may have a negative impact on the US financial system
   

Thus given the above the fortune of DSP BlackRock US Flexible Equity Fund, is closely linked to the performance of its underlying fund.

 

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