Reduce India-centric risk by diversifying: ING Invt

ING Investment Management has launched an ING Latin America Fund, which will invest predominantly in the ING Invest Latin America Fund. The scheme opens on June 19 and closes July 10. The NFO will act as a feeder fund into the Luxembourg-based ING Invest Latin America Fund. The countries that are part of the offer include Argentina, Venezuela, Brazil, Chile, Colombia, Peru, Uruguay, and -Mexico.

The scheme offers an alternative route for investors in India to invest in Latin American countries. The issue comprises units of Rs 10 per unit plus applicable entry load. The minimum application amount is Rs 5,000. The scheme is available in three options - dividend, bonus, and growth.

Vineet K Vohra, MD and CEO, ING Investment Management, said investors should broaden their porfolio and get rid of this India-centric bias by tapping into vast opportunities around the world. "We are launching a fund-of-funds, which is going to feed into a fund that has a 14-year track record. It is a part of an investment strategy that we run around the world, which feeds into the Latin American opportunity space. Latin America is a land of emerging opportunity. It's a bit like India with lots of the great stories that have made India what it is."

According to Vohra, the scheme has a very low correlation to the Indian market. "When markets in India fall, this would fall less. If the markets rise, it would rise to a different tune. So, something like this in the portfolio would reduce risk."

Excerpts from CNBC-TV18’s exclusive interview with Vineet Vohra:

Q: Why do you expect Indian investors to invest in the fund?

A: Any case for diversification must be first based on analysis of what Indian investors have today in their portfolios. There is a strong behavioral flow in an average Indian portfolio. Indian investors suffer from a very strong case of home country bias.

We get mixed up in the belief that while India is shining, the economy is surely shining as well. It is one of the brightest stars in the global economic firmament. The Indian stock market, on the other hand, is driven by sentiment like so many other markets around the world. At this point, the market is going through a period of volatility.

That is not unnatural. It happens in countries around the world. However, the way Indian investors choose to deal with the impact of that volatility is rather strange. We keep all the money in India, even though the policymakers have chosen to actually allow us access to the world of opportunities out there.

In a way, policymakers would like us to build more robust portfolios. For a variety of reasons, we have chosen not to look at that opportunity and that is something we are trying to change.

It is clear that the risk has become apparent. The case for global investing is based on the fact that Indian investors can relieve themselves of this home country bias by looking at the vast opportunities around the world.

Q: What are you looking at raising from this offer at this point in time? Is there a target that you are looking to raise? Could you throw more light on the strategies you would follow and the exposure you would take to various Latin American markets and industries?

A: If one takes a look at the total money raised by the Indian mutual fund industry in offshore Indian assets, the component of people’s money-invested offshore is not even a billion dollars; whereas the limit available is several times more than that.

The distraction caused by a strong bull run in the market now set aside, people will look at opportunity a lot more closely. As far as the investment strategy is concerned, we would adopt a very straightforward one.

We are launching a fund of funds. It is a part of an investment strategy that we run around the world, which feeds into the Latin American opportunity space. Latin America is a land of emerging opportunity. In a way it is a bit like India with lots of the great stories that have made India what it is.

The India story is based on young demographics, strong consumption, lots of infrastructure investment opportunities, global investment into infrastructure and good export potential. All of these stories are true in Latin America today.

Q: What has the parent fund registered in terms of returns so far, the Luxembourg based fund?

A: It has done about 36% in the last three years. It has got a five-star Morningstar rating. However, it is not based on returns but rather on the diversification potential that such a portfolio would offer.

It has a very low correlation to the Indian market. When the markets in India fall, this would fall less and if the markets rise, it would rise to a different tune. So, something like this in the portfolio would reduce risk.

Q: While the Latin American countries have remained relatively insulated from the global turmoil, I was reading a report by International Monetary Fund (IMF) which said that the strong fiscal and external current account surpluses are probably beginning to shrink and higher inflation, which has not spooked the Latin American markets till now, might actually do so in probably a year and a half to come. How bullish would you be about the certainty of the returns that you would see from the fund as you would have seen in the past as well?

A: The recent World Bank report lists a few markets in Latin America as offering the best opportunities for growth into the future. The main markets into which this fund would invest would be Brazil, Mexico and Chile.

These are markets that have very strong governance, good fiscal policies with inflation under control, strong consumption, young demographics and huge infrastructure investments, which would ensure that growth would be controlled into the future.

Inflation is running at low single digit levels at this point. The currencies are really strong and the future certainly looks bright. 

Q: Do you think Indian markets are running away in a hurry? Do you believe there is more downside left?

A: The medium to long-term outlook is certainly very bright. We are actually talking very closely to offshore companies about their opportunities in the Indian market. However, for an Indian investor looking into the future there is certainly some near-term volatility that must be taken into account. From a strategic standpoint, the portfolio is heavily concentrated and some diversification would help.

In the near-term, we do expect some volatility as the real effects of high inflation begin to play out into corporate growth. There will certainly be some slowdown in consumer demand. However, if the dollar were to begin to pickup, there may be some sort of holding back to this runaway inflation growth that we see. 

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