Skip to main content

Mutual Fund Review: Franklin Asian Equity Fund

Offshore funds are typically structured in order to take economic advantage present in respective foreign nation(s). The idea behind is to de-risk or reduce macroeconomic risks prevalent in the domestic economy by taking exposure to the economic advantages offered by other economies; which may pose to offer high growth potential, stability, political security and other fundamental strengths. However, offshore funds are vulnerable to a number of risks as well due to their overseas investments. Some of the inherent risks faced by offshore funds are country-specific macroeconomic risks, currency risk, taxation laws, regulation risks (affecting investment decisions), etc. Hence extensive cross-border research – both economic and political research needs to undertaken before committing any investments in such funds.

 

Franklin Asian Equity Fund (FAEF) is one such open-ended offshore equity fund from the stable of Franklin Templeton Mutual Fund, which follows a blend style of investing. FAEF is primarily mandated to invest in equities and equity-related securities of Asian companies (excluding Japan), along with debt and money market instruments. Launched in January 2008, the fund has completed a little over 3 years of existence.

 

Investment Objective and Proposition

The fund's primary investment objective is "to provide medium to long term appreciation through investments primarily in Asian companies / sectors (excluding Japan) with long term potential across market capitalisation." The fund is mandated to invest 50% - 100% of its total assets in equity and equity-related securities of foreign companies, upto 40% in equity and equity-related securities of Indian companies and upto 30% in domestic debt and money market instruments, to manage its liquidity requirements.

 

Over the past one year, FAEF's exposure to overseas stocks has been in the range of 74% - 86%, while its exposure to domestic (Indian) stocks has been in the range of 7% - 22%. Thus FAEF's tilt towards overseas equities justifies it being an offshore fund. The chart below as well as the portfolio turnover ratio of 61% reveals that FAEF has been quite consistent with its cross- border investments. This in a way also displays the fund manager's 'invest and hold strategy' while undertaking investment decisions.

 


(Source: ACE MF, PersonalFN Research)

Equity Portfolio

Holdings

Focus

December 2010

January 2011

February 2011

March 2011

April 2011

Taiwan Semiconductor Manufacturing Co Ltd.

Offshore

4.7

6.9

6.8

6.8

5.9

Hong Kong Exchs & Clearing Ltd.

Offshore

4.4

4.6

4.6

3.8

4.0

China Shenhua Energy (HongKong)

Offshore

3.1

3.1

3.4

3.8

3.7

Parkson Retail Group (HongKong)

Offshore

3.8

4.4

3.9

3.1

3.5

Dairy Farm International Holdings

Offshore

3.5

3.0

2.8

2.9

3.1

Bharti Airtel Ltd.

Domestic

3.6

2.7

3.1

2.8

3.0

China Construction Bank Corp

Offshore

2.5

2.5

2.7

2.8

2.8

Hyundai Motor (South Korea)

Offshore

3.8

2.5

2.0

2.3

2.8

China Overseas Land & Invest Ltd

Offshore

2.4

2.6

2.4

2.9

2.8

Woori Finance Holdings (South Korea)

Offshore

1.7

2.4

2.5

2.6

2.7

Top 10 holdings (in %) on March 31, 2011

 

As indicated by the table above, FAEF's portfolio largely constitutes of Asian economy stocks, barring one Indian company – Bharti Airtel Ltd. Moreover, the latest portfolio of stocks (as on April 30, 2011) reveals that the fund's exposure to Indian companies has been around 14%.

 

While undertaking its stock picking activity, the fund manager follows a bottom-up approach. The fund manager seeks to invest in the best opportunities in the Indian and international markets without any specific sector or market cap bias.

 

Being benchmarked to the MSCI Asia (ex Japan) Standard Index, FAEF's latest portfolio (April 2011) consists of total 62 stocks out of which 12 stocks pertain to Indian companies (which are from the 'A' and 'B' group) and 50 stocks of overseas companies. Also, its top-5 sector concentration is quite well controlled at 10.67%.

 

How FAEF has fared vis-à-vis its peers

Scheme Name

6-Mth (%)

1-Yr (%)

3-Yr (%)

Std. Dev. (%)

Sharpe Ratio

Franklin Asian Equity (G)

1.0

19.6

4.5

6.14

0.02

ICICI Pru Indo Asia Eq-Ret (G)

-5.7

14.8

3.3

8.46

0.01

BNP Paribas China-India Fund (G)

-8.5

7.0

-0.4

7.75

-0.03

HSBC Emerging Mkts (G)

3.8

25.1

-3.4

8.20

-0.01

Kotak Global Emerging Mkt (G)

0.1

20.8

-5.0

8.07

-0.05

BSE-200

-11.0

6.3

2.3

10.20

0.02

(NAV data is as on May 23, 2011. Standard Deviation and Sharpe ratio is calculated over a 3-Yr period. Risk-free rate is assumed to be 6.37%)

 

The above table reveals that on the return front, FAEF has shown superior performance vis-à-vis its peers. In a 3 – Yr time frame, the fund has delivered a return of 4.5% CAGR; but returns appear quite paling when compared to domestic (Indian) diversified equity mutual funds which follow strong investment processes and systems.

 

On the volatility front too, FAEF exposes its investors to low risk (Standard Deviation of 6.14%), and at the same time it has been able to clock a decent risk-adjusted returns of 0.02 (as revealed by its Sharpe Ratio) as compared to its peers. But again this risk-adjusted return looks quite lagging when compared with some domestic (Indian) diversified equity mutual funds which follow strong investment processes and systems. This thus makes FAEF low risk-medium return investment proposition as compared to its peers.

 

Relative Performance

(Base: 10,000)
(MSCI Asia (ex Japan) Standard Index data is not available in public domain)

 

The graph above shows, 10,000 invested in FAEF and ICICI Pru Indo-Asian Equity Fund (IPIAEF), 3 years ago (i.e. on May 23, 2008), is worth 11,412 and 11,033 respectively on May 23, 2011, whereas a similar investment in BSE-200 [considered for comparison as MSCI Asia (ex Japan) Standard Index data not available in public domain] has yielded 10,693.

 

However, interestingly the fund has actually underperformed its benchmark index in the past 2 calendar years. This reveals that the fund has not been able to completely take advantage of opportunities available in the Asian economies.

 

Calendar year returns

Scheme / Benchmark Index

2010

2009

FAEF

8.08%

51.38%

MSCI ASIA (ex JAPAN) Standard Index

12.42%

60.47%

(Source: Franklin Templeton Mutual Fund website)

 

Fund Manager Profile

Name of the Fund Manager

Mr. Sukumar Rajah

Ms. Roshi Jain

Total Work Experience

Over 21 years

Over 9 years

Managing the fund since

Nov-07

Nov-07

Qualifications

B.E. from University of Roorkee & MBA from IIM, Bangalore

CFA, ACA and PGDBM

 

 

-----------------------------------------------------------------

 

Also, know how to buy mutual funds online:

 

1) DSP BlackRock Mutual Funds:

http://prajnacapital.blogspot.com/2011/05/buying-dsp-blackrock-mutual-funds.html

 

2) Reliance Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-reliance-mutual-funds-online.html

 

3) Reliance Mutual Funds:

http://prajnacapital.blogspot.com/2011/07/buying-hdfc-mutual-funds-online.html

 

4) Sundaram Mutual Funds:

http://prajnacapital.blogspot.com/2011/07/buying-sundaram-mutual-funds-online.html

 

5) Birla Sunlife Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-birla-sunlife-mutual-funds.html

 

6) UTI Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-uti-mutual-funds-online.html

  

7) SBI Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-sbi-mutual-funds-online.html

 

8) Edelweiss Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-edelweiss-mutual-funds-online.html

 

9) IDFC Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-idfc-mutual-funds-online.html

 

 

Popular posts from this blog

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...

Bharat Bond ETF

Top SIP Funds Online   The government of India has paved the way for the launch of India's first corporate bond ETF called as Bharat Bond ETF. Edelweiss Mutual Fund will be managing it. The fund is mandated to invest in AAA-rated bonds of select public sector companies (see the table 'List of constituents and their proportions in the portfolio'). The government has a threefold objective behind launching this product. One, to deepen the liquidity of the Indian debt markets and provide a gateway for easy retail participation. Two, to solve investors' dilemma of picking premium bonds. Lastly, to help the underlying government-owned companies raise funding for their operations. But does it make sense for you, the investor, to invest in it? Lets find out. What is the product? As the name suggests, it is an exchange-traded fund which will be listed on a stock exchange from where its units can be bought and sold post launch. It will have two variants - one maturing in 3 ye...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now