HSBC Brazil Fund: To invest or not to invest

Mutual Funds

oi-Shoaib

By Shoaib Md

Published: Monday, December 12, 2011, 12:38 [IST]

Investors who are interested in diversifying in foreign countries have an opportunity. HSBC Asset Management (India) has launched a new fund offer (NFO) called HSBC Brazil Fund, a fund of funds (FoFs), that will invest in Brazil.

FoFs invest in other funds and not directly in the market.

While the choice of country gives hope since just like India, Brazil"s economy is on growth path, the choice of fund doesn"t inspire confidence in view of its past performance.

Facts about the Fund

The NFO will invest in HSBC Global Investments Funds (HGIF) Brazil Equity Fund.

The NFO"s international portfolio will be jointly managed by Gaurav Mehrotra and Niren Parekh.

The equity exposure of the scheme could range around 95-100% and the debt part 0-5%.

The scheme"s expense ratio is 2.50% per annum. Of this, 1.65% will go into the FoF kitty, the balance 0.85% will be cornered by HGIF fund.

For the purpose of perspective, you can compare it with the expense ratio of HSBC Equity Fund at 2.01%, an equity fund which invests in India. The other fund with which we can compare is HSBC Emerging Markets Funds with an expenses ratio of 1.10%, a fund which invest in all emerging market.

Why you can consider the fund

In 2010, India's gross domestic product (GDP) grew 8.6% in FY11, compared to Brazil's 7.5% but its economy scores over India on another aspect.

Pedros Bastos, regional head, HSBC Global Asset Management in an interview, to a leading TV said that in Brazil "The index is heavy on commodities, but the overall economy isn"t."

Bovesta index, the major index in Brazil is heavy on commodity especially oil, iron ore and steel based companies. But in Brazilian economy net export is only 10% of GDP and only 6% of these come from commodities.

Since India is a country which gets affected when crude oil rises, it would be make sense to diversify by investing in a country which is self-sufficient in commodities.

The Achilles heel

Over the last 10 years, both Nifty and Bovespa generally move move in the same. between January 2000 and December 2010, Nifty gave an average return of 20.68% compared to 20.19% of Brazil"s Bovespa index.

The HSBC Emerging Markets Fund, which also invests in emerging markets, Brazil being one of them, has given negative return of 0.05% over the last three years. Meanwhile in the same time period, Nifty returned around 5.68. (Data from Value Research website)

Our View

Its a costly fund, with high expense ratio. Although having a small portion in an international fund is a good idea but doing so by investing in a country specific fund is not the right approach. Since international investments are subject to tax treatment like a debt fund, it is best to weigh it properly if you need an international fund and what kind would suit your portfolio.

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