Negative returns plague hedging as NAVs crash

Clearly, the strategy of hedging by investing diversified markets has not helped domestic retail investors. This year, when investors have earned negative returns from their most favoured equity schemes, a majority of the international funds offered by domestic fund houses has done worse.

In its basket, domestic fund houses offer 28 international schemes to investors. The year-to-date returns are in the negative territory and a majority is in the range of eight per cent to as high as 26 per cent. Moreover, since August 1 when crisis worsened worldwide, the net asset value (NAV) further crashed in the range of 8 per cent to 20 per cent.

Barring four, all others have seen NAV slipping. Out of the better-performing funds, three are associated with the precious metal gold. Interestingly, during the recent period, the rupee has depreciated against the major world currencies. The depreciation against the US dollar, Hong Kong dollar and Japanese yen has been the highest — between 12 and 14 per cent.

The only relieving factor for the investors is the worse than funds' fall in many of the funds' benchmarks. In several cases, the benchmark world indices have dipped 10 per cent more than these funds.

Despite having a depreciating rupee, the value of units continued to erode on the back of worsening scenario in overseas markets. Generally, when the rupee depreciates, NAV goes up. Since stock markets traded weak worldwide, investors could not reap the desired benefit out of the exchange rate.

The chief investment officer of a fund house, which has two international funds in its kitty, says there has been a sharp fall in the world stocks markets over the past two months. "This is reflected in the funds' performance. In several cases, the value got butchered as crisis deepened in a short span of time."

AIG, Birla Sun Life, DSP Black Rock, HSBC, Kotak, JP Morgan, Mirae Asset, Goldman Sachs and Fidelity are among the fund houses which offer international funds to investors.

Explains another equity head who manages an international fund: "When the selloff happens around the world and currency moves so fast, we face trouble from both sides. Markets have fallen like hell in the past few months. The demand for dollar is peaking; so several currencies are in a depreciating mode. This does not augur well in terms of returns."

FUND WATCH Showing comparative returns of the international funds and their benchmarks since 1 August, 2011
Fund	Return(%)	Benchmark	Return (%)
Birla Sun Life Commodity Equities - Global Precious Metals Ret	5.92	DJ Precious Metal	-8.57
Franklin Asian Equity	-15.12	MSCI Asia	-19.60
Goldman Sachs Hang Seng BeES	-11.77	Hang Seng	-22.04
HSBC Emerging Markets	-18.67	MSCI EMI	-24.93
JP Morgan JF Greater China Equity Offshore	-17.67	Golden Dragon	-23.52
Kotak Global Emerging Market	-14.13	MSCI EMI	-24.93
Mirae Asset China Advantage	-19.15	MSCI China	-25.72
Source : Value Research, Bloomberg Compiled by BS Research Bureau

Since last month, domestic benchmark indices have lost close to 12 per cent of their values.