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Investors can retain units of DSP BlackRock World Energy Fund. A sharp pullback in commodities, especially crude, in recent months notwithstanding, this international fund-of-fund is suitable for investors who wish to benefit from the long-term demand-supply gap in oil and other sources of energy.
The fund provides exposure to some of the top oil and gas exploration, production and service companies worldwide, thus helping local investors overcome the handicap of limited opportunities available in India. The fund's 33 per cent return over the last one year has placed it at the top of the mutual fund category, thanks to the rally in crude oil for a good part of this period.
Why go international?
Despite deregulation in India, oil companies do not enjoy the freedom of pricing based on market dynamics. Added to this, most oil companies in India neither have presence across the globe nor are well-diversified across business streams. Global independent players on the other hand, not only enjoy considerable flexibility in pricing but also hold presence across regions and have distinct advantages such as higher reserve replacement ratio. Newer opportunities such as shale gas have also brought to limelight investment opportunities in smaller companies. Strong fundamentals of some of the stocks such as Anadarko (largest holding in the portfolio), besides undemanding valuations of some of the companies provides a good case for staying invested. The fund may also be viewed as a good hedge against inflation.
Performance
DSPBR World Energy Fund has outperformed local funds such as Sundaram Energy Opportunities and UTI Energy and DSP BR Natural Resources and New Energy by a huge margin over a one year period. This is indicative of the superior opportunity available globally in this space.
However, returns of just 9 per cent since launch means that the fund has a long way to go before it can perk up an investor's portfolio. The parent fund, BlackRock World Energy Fund (into which the Indian fund invests) has generated an annualised 11 per cent return since its launch in 2001, with periods of very high returns in 2005, 2007 and 2009. An active strategy of booking profits therefore appears to be a must. Investors may at best use the fund as a diversifier and keep exposure limited.
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