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Commodity-focused funds put up a poor performance

Schemes gave maximum returns of 20% and minimum of -4%

WITH inflation rising all round the globe and commodities on fire, advisers have been cajoling investors to buy into mutual funds that invest in shares of commodity companies. But you should look deeper, before you step in.

With surging inflation estimated to have cost Indian households an additional Rs 5,80,000 crore during 200809 to 2010-11, investors are inclined to put money to ride on inflation themes. Right from agriculture raw materials, fuel, food and metals, most commodities — as reflected by major indices — have gone up by 20-40 per cent in the last one year.

But how have the niche group of eight commodity focused funds done in the last 12 months? If we take Sensex 4.8 per cent return in last 12 months as benchmark, then there is a wide variance in the performance of schemes with the maximum being 20 per cent and the minimum being -4 per cent. This means the performance of commodity-focused funds has been patchy.

Out of eight commodity focused funds, four have clocked more than 12 per cent gain while the balance four have not managed to even beat food inflation's nearly 9 per cent rise in May 2011. On the other hand, normal stock MFs have not done bad either too.

Nearly 50 per cent of the 230 plain vanilla diversified stock funds has beaten Sensex in the last one year. Fund managers point out that while some commodity MFs may do well during commodity price boom affecting a set of commodities, they should be treated on par with thematic funds, that means a small allocation could be for them.

Thematic funds surely deserve a space in one's portfolio. But, the exposure should not be more than 1015 per cent. Funds that invest in companies that are a commodity play are also a theme.

Birla Sun Life Commodity Equities (Global Agri) scheme heads the 12-month performance list with 20.02 per cent gains, followed by ING OptiMix Global Commodities with 18.14 per cent, Mirae Asset Global Commodity Stocks (15.84 per cent), Birla Sun Life Commodity Equities (Global Multi Comm.) with 13.66 per cent.

On the other hand, Reliance Natural Resources with 8.32 per cent, DSP BlackRock Natural Resources & New Energy's 6.76 per cent and SBI Mag num COMMA's (-0.13) re turns are not impressive.

Radhika Gupta, director, Forefront Capital Manage ment feels that the best way to take exposure is to directly invest in commodities.

When you are looking for more than just basic passive exposure, commodity MFs are not available in India.

What you have are funds that invest in stocks of com modity companies. All stocks have specific issues, which may not help to log returns.

Advisors say that though funds investing in commodity companies are a good idea, there are some caveats.

The mutual funds that in vest directly into the equity of related companies will Pinaki Paul have to pay greater attention to each company's strategy instead of the price movements of the underlying commodity.

Also, commodities may not enjoy the bull-run for an extended period of time.

CLSA strategist Russell Napier in a recent report says that the structural distortion in the US treasury market is about to unwind and will result in increase in emerging market interest rate and exchange rates. If the scenario, as envisaged by Russell, unfolds in the near term then commodity prices will likely correct sharply.

 

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