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Business News/ Money / Calculators/  Product crack: Sundaram World Brand Fund
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Product crack: Sundaram World Brand Fund

It is a closed-end fund that will invest in overseas equity

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In keeping with its recent strategy of launching closed-end new fund offerings, Sundaram Asset Management Co. (AMC) Pvt. Ltd has launched Sundaram World Brand fund. It is a closed-end fund that will invest in overseas equity. It comes with two series, 3 years and 5 years.

WHAT’S GOOD

It will invest in companies that own the top brands across the globe. Sundaram will rely on established brand surveys to arrive at the top brands, and the portfolio will consist of 30 stocks that represent the top 30 brands in the world. These brands include names such as Google, Nestle and Citigroup. The fund is sector agnostic by design and is not focused on the country of origin of the companies. However, by default, the top brands fall in sectors that are in the retail consumer segment, and around 70% of the companies in the portfolio are listed in the US (the most liquid market to buy these securities).

While doing the research behind the idea, Sundaram found that companies that have products with high brand recognition do well in equity markets over long periods of time, despite high valuations. This is because of the underlying company’s ability to innovate while leveraging the established brand.

The fund will be advised by Sundaram AMC Singapore. Apart from brand value, the portfolio manager will consider the quality of corporate governance of a company.

WHAT’S NOT

First, by default, the fund is exposed to currency risk. This may be mitigated to an extent as companies in the portfolio are spread across the globe, and their earnings are not concentrated in any one currency. Nevertheless, if the Indian rupee appreciates too sharply in a short period of time, any gains in the portfolio may get eaten into. Second, the closed-end nature of the scheme makes it susceptible to the risk of market timing. While the concept itself is evergreen, a closed-end structure will only allow an investor to reap benefits for a specified period. As markets are unpredictable, the performance can go either way. Although fund managers can plan liquidation in advance, they may not get the price they are seeking given the limited time frame.

MINT MONEY TAKE

Sundaram AMC comes with a reasonably good track record. Such a fund is a good opportunity to get access to investing in companies that you may not be able to otherwise, and it gives geographical diversification to an existing portfolio. However, it is not a fund for first-time equity investors. Also, one should be mindful of the closed-end structure of the fund. The AMC plans to launch successive series in this fund once every quarter, so this won’t be the last chance for you to invest in the fund.

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Published: 18 Nov 2014, 07:12 PM IST
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