NFO review: Axis Global Equity Alpha Fund of Fund, a way to diversify your investments geographically

This is an open-ended fund of fund scheme investing in $1.3-billion Schroder International Selection Fund Global Equity Alpha which has been in the existence for over 15 years

Kumar Shankar Roy Sep 2, 2020

International fundsAxis Mutual Fund is launching a new fund offer (NFO) for Axis Global Equity Alpha Fund of Fund. The NFO opens on September 4 and closes on September 18. Instead of focussing on one country or region, the FoF will potentially give exposure to global largecap growth equity companies, invested in by the Schroders ISF Global Alpha Equity Fund, spread anywhere among different regions like North America, Continental Europe, Emerging Markets, United Kingdom, Pacific ex-Japan. In this article, we will take a look at how this new fund is different from peers. Read on.

Getting rid of home bias

Investors belonging to any country want to invest in local opportunities. Yet, investing only in one market raises the risk levels. This is more pertinent for Indian investors, as globally the Indian equities market is a mere 3% of the world market value. There is a whole wealth of companies outside. Global markets are home to companies of global stature with the kind of scale, customer base, network effect, and competitive moat that very few Indian companies can achieve of emulating, in the near term.

Also, all of the promising equity investment opportunities arising are in sunrise sectors which are not available on Indian exchanges. Additionally, Indian markets are identified in the emerging market (EM) space. A portfolio with good exposure to different markets is better if the exposure to developed markets is higher.

Axis Global Equity Alpha Fund

Indian funds rarely have global expertise

It is rare that a global fund manager will have excellent Indian equities knowledge. In the same way, it is also true that rarely will a local fund manager have excellent global equities knowledge. We are not talking about sectoral funds that have room to invest a certain percentage of the money in global equities or funds like the Parag Parikh Long Term Equity Fund which has 25-30% in overseas equities. This is the reason why a fund of fund is a popular idea when it comes to global investing. Axis Global Equity Alpha Fund of Fund is taking the right path. The Indian investor will invest their money in the Axis scheme, which in turn will put the money in the $1.3-billion Schroder International Selection Fund Global Equity Alpha that has a track record of 15 years.

Axis and Schroders are partners in the Indian MF business, where the latter holds a 25% stake. Schroders is a global asset expert, with an AUM of £460.1 billion. Coming back to the Schroders ISF Global Alpha Equity Fund, the product has out-performed the MSCI World NR (total return) in 1 year, 3 year, 5 year etc. time-periods.

Investment philosophy of Schroders

Axis Global Equity Alpha Fund of Fund will in a big way track the investment philosophy of Schroders. The global fund-house looks at forward earnings growth not yet identified by the market – the growth gap. The gap can exist in two ways: Core growth – Markets often fail to look far enough ahead & Opportunistic growth – Consensus often fails to anticipate inflection.

The global 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 for that business. As the fund is index unconstrained it is managed without reference to an index. The manager seeks to identify companies which he believes will deliver future earnings growth above the level expected by the market typically on a 3-5-year horizon (they call it ‘a positive growth gap’).

The global fund is managed with reference to material ESG – environmental, social, and governance factors. This means issues, such as climate change, environmental performance, labor standards or board composition that could impact a company’s value, may be considered in the assessment of companies. At present, its top holdings are in Amazon, Alphabet, Microsoft, Visa, Adobe, Facebook, Unitedhealth Group, Intuit, JPMorgan Chase & Co, and Philip Morris International.

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

Axis Global Equity Alpha FoF facts

Category – Fund of Fund scheme

Plans offered – The scheme offers the following plans:  Axis Global Equity Alpha Fund of Fund – Regular Plan &  Axis Global Equity Alpha Fund of Fund – Direct Plan. Each plan offers options • Growth Option & • Dividend Option (Payout and Re-investment Facility).

Systematic Investment Purchase (SIP) starting Rs 1,000 per month and Switch In facility would be available.

Fund manager – Hitesh Das & R Sivakumar

Minimum application – Rs 5,000

Exit load – 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

Taxation – Funds that invest in international assets are treated as debt funds in terms of taxation.

RupeeIQ take

We know what you are thinking. Global equity funds are not new. In fact, the oldest existing international equity fund in India was launched way back in 2004. We can all agree that international equity funds serve a good diversification purpose. Then, how is Axis Global Equity Alpha FoF different?

If you can ignore the fund of fund structure for a moment, this product fits into the diversified global equity fund space. The international fund space available to Indian investors offers the following plays:

* Thematic international funds (focussing on commodity firms, real estate firms, consumption firms, sector focus, etc.)
* International funds that focus on regions like Emerging Markets, ASEAN/Asian, Europe, Americas.
* International funds that focus on a country like the US, China, Japan, etc.
* International funds that invest with a diversified mandate.
* International index funds like S&P 500, Nasdaq 100 etc.

We believe international equity funds with a global diversified mandate are better from a risk perspective. Axis Global Equity Alpha FoF is a new offering and hence has no track record of its own. Yet, the global fund has a good record and is reasonably large too.


Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at kumarsroy@rupeeiq.com.

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