Fidelity to invest in energy, commodities, realty via NFO

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Fidelity to invest in energy, commodities, realty via NFO

Fidelity Funds has launched a new Global Real Asset Securities Fund. In an exclusive interview with CNBC-TV18, Portfolio Manager, Amit Lodha, spoke about the fund.

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Excerpts from Markets Midday on CNBC-TV18 Watch the full show » RELATED NEWS Fidelity MF launched Global Real Assets Fund Nifty BSE | NSE 30/05/12 Are Mutual Funds betting on Nifty? Other Stocks in this news Jet Airways |

Fidelity Funds has launched a new Global Real Asset Securities Fund. In an exclusive interview with CNBC-TV18, Portfolio Manager, Amit Lodha, spoke about the fund.

Here is a verbatim transcript of an exclusive interview with Amit Lodha on CNBC-TV18. Also watch the accompanying video.

Q: Take us through what this fund means, who can invest in it? It's a different type of fund, it's a fund of funds, and it's a feeder fund, I guess the first of its kind when it comes to India. Why investors should be putting money in a feeder fund at this point in time-just a rational?

A: It's an interesting fund for Indian investors. The fund is called the Global Real Asset Securities Fund. It invests across the globe in securities of companies in cyclical industries like energy, industrials, commodities, real estate and gold. So with one fund we can give investors a play into various kinds of securities like gold, platinum, energy and it gains from whatever India is going to need over the next few years.

Interesting about the fund is that it does not invest in domestic linked sectors, like financials, telecom, consumer, where I would say that the outlook for Indian companies is definitely superior to what you see internationally.

Q: I assume there must be some global real asset funds that Fidelity has from before. Could you tell us what that fund's performance has been and what your role in this is? Are you actively involved or you are going to handover the money to some Fidelity person in Boston and pay them a 2-3% fee for managing this?

A: I am the Fund Manager of the Fund, I am based in London. The new fund offer, which we have launched here, collects money in India and that money is invested in the fund which I have been running since January of last year. That fund has had a strong year; last year it was up 86%, it outperformed the Indian market by about 9% and in its own benchmark by about 49%. So last year was a pretty good year for the fund and that is a fund which is now available for Indian investors to invest in.

Q: As you open the fund what would be your initial portfolio. Is it all going to be equities, its going to be any real assets, any hedges or options that you may buy into, it maybe perhaps a little riskier product and then what would you allocate it geographically and on a commodity basis. Which commodities and what geographies?

A: It's an existing fund so I have an existing portfolio which is already running. The fund can invest in energy, industrials, materials, commodities. The basic view I take is I look at commodities; if I have a strong view on a particular commodity, I buy the equities which should do well as that commodity price goes up. On the other hand if I do not have a very strong view on a particular commodity then I buy the equities, which should do well when those commodities go down. For example: if I am very bullish on the oil price, I would by exploration and production (E&P) like Cairn and if I have a negative view on the oil price then I might buy an airline company like Jet Airways, which does well as the oil price goes down because fuel is their largest cost.

The idea of this fund is that it dynamically asset allocates between various sectors depending on the outlook for the sector, depending on where the valuations are very interesting, backed by the Fidelity research team that I have access to globally. The fund does not do any derivatives; it's a long-only fund. So the idea is to invest in only equities. It has the ability to invest in exchange-traded funds (ETFs) and the like but my perspective is that I think equities offers much better plays into commodities than ETFs or exchange traded commodities (ETCs).

Q: If you could give us the geographical break-up also and India per se how much investment you would have in India currently and if you could give us a break-up vis-à-vis the sectors as well, energy, real estate. Also, your take on two interesting points; with inflation coming back how does Indian real estate looks as an investment right now and even on oil marketing companies. They have been dog so far but there is hope of a lot of policy change as we go into the budget right now. Will this be an interesting time to invest in that space?

A: From a geographical perspective the fund is a global fund so about 60-70% is in developed markets, about 30% I can invest in emerging markets. But there are lot of companies internationally, which gain from the growth which is happening in emerging markets. For example if you look at the mining companies internationally or the gold companies, which an Indian investor does not have an access to but are gaining from the demand that we see from Indian investors for gold or for Chinese investors for copper, steel and those kind of equities.

From an inflationary perspective you have hit the nail right on the head. Inflation is a big worry for investors over the next two-three years. The amount of central bank money printing that we have seen, we will see inflation rearing its head. And, in that scenario we think that this fund will do extremely well because of the investment allocations that we have within this fund. Between the various sectors, I can dynamically asset allocate. So I am not restricted to being in one geography or in one equity class or one commodity class.

Q: We want your views on which commodities-if you look at past performances its easy to say this is the way it's going to be but we have to look at this particular year and see which commodities do you think are going to outperform and my next question relates to playing the stocks of these commodities because markets like Canada and Indonesia-some of these commodity companies have not had a great track record; they claim they found something, sometimes you never find it, sometimes not there. How are you going to protect against those kinds of risks because this maybe high return, high risk kind of a portfolio?

A: If you look at the commodities then I have a positive view on at this point of time. I really like the dynamics of platinum. I think platinum is a very interesting commodity because it has got its linkages to gold. At the same time about 50% of platinum gets used in autocatalysts, which has linkages to the recovery story that we are talking about. So if the recovery story comes through then platinum demand should rise strongly.

I like steel also because you are seeing a lot of infrastructure demand coming back because of the stimulus programmes in the developed markets as also the developing markets have not stopped growing, so that continues.

I like the outlook for fertilisers; I like the outlook for Japanese engineering companies. So it's a very widespread of securities that I can buy in this fund.