Mutual Funds
Avoid HSBC Brazil Fund new fund offer

Rewards of investing in foreign funds are not worth the risk

HSBC Brazil Equity Fund, a fund of funds (FoF) is coming to the market. According to the prospectus filed with the Securities and Exchange Board of India (SEBI), the Fund will primarily invest in HGIF Brazil Equity Fund, managed by HSBC Global Investment Funds (HGIF), as well as in other overseas mutual fund (MF) schemes benchmarked against the MSCI Brazil 10/40 Index. It may also undertake currency hedging as a shield against volatility in the currency markets. Avoid it. Here are five reasons why it would be better to avoid it.

1.    It's a fund of funds: FoF is a lousy idea. It takes your money and puts it into other funds. It adds another layer of cost without adding any benefit.
2.    Monitoring: The Fund would be invested in a Brazilian fund investing in Brazilian securities. How much do you know about that fund? It would be a blind bet.

3.    Track record: We have no idea about the long-term performance record of the Brazilian equity fund.

4.    Diversification: Funds that put your money in other countries presumably offer another round of diversification. Well, in this case, it's not so. Brazilian and Indian markets are correlated. We don't see how you can derive additional returns without adding risk. In fact, the Brazilian market is as volatile as the Indian market. Mistakes by fund managers (that are lurking around the corner) can be very costly.

5.    Benchmarks are not available: Most shockingly, you cannot even compare how these funds have performed vis-à-vis a benchmark. Of the 16 funds in which HSBC Brazil Equity Fund says it would invest, benchmarks of eight schemes are not available in the public domain to facilitate a comparison of their performance with respect to the benchmarks.

Those who read Moneylife regularly will know, as we have pointed this out long ago, that funds which take your money and invest in foreign stocks are pure fads. In the very fifth issue of the magazine, way back in 2006 (Moneylife, 7 May 2006), when fund companies launched foreign funds, we wrote: "Fund companies are offering a chance for geographical diversification. There are several reasons why this is not a great idea." In our 40th issue (Moneylife, 13 September 2007), again we wrote: "Offering you funds that invest abroad is the flavour of the season. Stay away from these for now." But, of course, bull markets can keep dubious ideas in circulation for years together. By the time it was the 43rd issue (Moneylife, 25 October 2007), we were forced to write that "International funds are a rage now, but early entrants have a patchy record." Finally, in our 73rd issue (Moneylife, 18 December 2008), we had a report card. An article titled "Global Funds, Local Results" laid bare the truth. We said, "Fund companies may not know much about the value and price of Indian stocks, but they surely don't lack confidence in exhorting you to invest in a fund that invests in foreign stocks. How have these funds done over the past one year? They have all lost tonnes of money."

The faddish nature of the funds comes through clearly. When the commodity markets are shooting up, fund companies will launch commodity-focused equity funds. When the Chinese market is hot, they will launch a China fund. No wonder that in 2007, at the height of the bull market, as many as eight funds were launched that planned to invest overseas. All of them have performed very badly since inception. On an average, they have given returns as low as 0.1%. When they were launched, we had pointed out that these funds were mere gimmicks.




6 years ago

A few points -
1) Moneylife has earlier written in some articles that global funds are uselss. The fact remains that some part of portfolio needs to be diversified. The timing is important here.
2) Though Brazil as a economy has pothential and so has India and Historically both have had high correlation and so in that respect it doesnt make sense to invest these. One needs to invest in a theme to diveesify which is not correlated like a developed market fund.
3) The fund might not be a good idea as doing some research, I found that this fund is rated as 1 star (Lowest Rating) by Morningstar (One of the premier rating agencies worldwide). The feeder fund has under performed the benchmark and peer group. It's like if a foregin national wants to invest in India story through a MF route and he has to invest in the worst perforimg Large cap fund in India like he invests in JM Equity Fund rather than a HDFC Top 200 Fund as he doesnt have any other choice.
4) As a tactical call even if Barzil makes sense, going by fund's performance it is a BIG no. One should wait for some other fund house's fund which has a better track record or take a similar commodity exposure through some other fund.


6 years ago

Pls read the remarks of Money Life.


6 years ago

It is wrongly mentioned in the article that benchmark is not available. Brazil MSCI 10/40 index is the benchmark.

and we believe, even investing in brazil do give diversification in form of socio-political factors


6 years ago

"Brasil has massive "planned" spending ear marked for its infrastructure for Football world cup in 2014 and olympics in 2016. Bigger events than cricket world cup and CWG. Notice the operative word is planned and not chaotic and curruption ridden as in India."
This is breathtakingly idiotic.
Did you invest in Chinese stocks before the Olymics? What were your returns?


arjun punia

In Reply to Hemant 6 years ago

well may be you are right... i am not going to fight you on this, but i feel that investments that i have made in 2009 till today in Chinese funds have returned close to 18% P.A.


6 years ago

All these comments seem motivated and sponsored by the fund company. Not one of the points have been refuted. Investing based on one year data is incredibly stupid. Do you guys even know one company of Brazil?
Thanks Moneylife for being telling us like it is


6 years ago

I truely agree with above comments. This article is totally baseless and without any home work and more of influenced by other fund houses. Its a great fund and one should have horizon of 1 to 3 yrs to have great return on investments.



In Reply to nishikant 5 years ago

Do you work for HSBC ....i was told by one of the so called "relationship manager" to invest in this...since the day of launch this fund has rarely been above the purchase price of 10 per unit...people like u (if u r fund manager) make fool out of people to meet your targets and earn good bonus...

Arjun Punia

6 years ago

Just a few things about this article

1) This is not a fund of funds, it is actually a fund of a fund (singular). This fund invests into HGIF Brasil fund. The HGIF directly invests into 40-60 stocks. So i believe this is an irresponsible comment.

2) Also the fact that it is a fad is incorrect, as Brasillian economy is quite different from india as Brasil has a trade surplus, compared to India's trade deficit. So oil prices rise and comodity rise effects India more adversely than it would Brasil as they produce sufficient oil and comodities.

3) Brasil has massive "planned" spending ear marked for its infrastructure for Football world cup in 2014 and olympics in 2016. Bigger events than cricket world cup and CWG. Notice the operative word is planned and not chaotic and curruption ridden as in India.

In my opinion this fund is well worth it for the Indian investor. You would be a brave man to bet against Brazil being more bullish than India in the Short to Mid term.



In Reply to Arjun Punia 6 years ago

The SCHEME INFORMATION DOCUMENT says HSBC Brazil Equity Fund (HBEF) is An open-ended fund of funds scheme (Plural).!!

arjun punia

In Reply to CSK 6 years ago

Asset Allocation Pattern of the Scheme:

Units/shares of HGIF Brazil Equity Fund - 95%-100%
Money Market instruments (including CBLO & reverse repo) and / or units of liquid mutual fund schemes - 0%-5%

From HSBC GIF Brazil Equity Fund
Sales aid:

Fund Characteristics
Universe: Brazilian Equities with no capitalisation constraints
Benchmark: MSCI Brazil 10/40
Number of stocks: 40 to 60 stocks on average
Management fees: 1.75% tax included
Performance fees: NONE
Subscription fees: 5.54% maximum, tax included
Redemption fees: NONE
Dealing: Daily before 10:00 (CET)
Valuation: Daily
Settlement: Trade day + 4 business days

NOTE: Number of stocks: 40 to 60 stocks on average, not funds but stocks, so where is the argument


6 years ago

Brazil is an extremely promising economy which compliments India in many ways. Its a Commodity giant and will become a leading Oil exporter in coming years. The demographics and per capita income are extremely attractive. This particular fund already has a track record of more than 5 years and a benchmark (MSCI Brazil10/40) & the author should check the facts before commenting / criticising any economy or investment opportunity.


6 years ago

You obviously have not done your homework before writing this piece. The Brazil Index gave over 150% return in 2009 which was way above any emerging market. Also most international fund out performed the indian markets in 2010! So please think before writing..This fund could be a sound investment keeping in mind that brazil unlike india is rich in commodities like oil & enjoys a trade surplus..


6 years ago

Brazil's equity market surely has given far better returns in the last few years... and i won't mind betting in Brazil.
Fund of fund may be a lousy idea (you could have put that in a better way), but your article sounds like street argument..

Economic concerns weigh on markets: Global Market View

President Obama’s long-term plan to cut the budget deficit pushed the US markets higher on Wednesday while markets in Asia were lower in early trade today on a strengthening yen

While the Indian bourses are closed today on account of a local holiday, here is a brief view of the global markets. Economic concerns continue to weigh on markets worldwide. The US markets closed marginally higher on Wednesday amid a volatile session following president Barack Obama’s budget speech, which called for a reduction in the budget deficit by $4 trillion over 12 years. Markets in Asia were soft in early trade on Thursday on the strengthening yen and easing of metal prices.

Yesterday the market opened soft on lacklustre global cues, following easing of oil prices and concerns about the pace of the global recovery. The Sensex fell 76 points to 19,187 and the Nifty opened lower by 38 points at 5,748. The market immediately touched the day's lows with the Sensex erasing 161 points at 19,102 and the Nifty falling 50 points to 5,736. February industrial output figures, which were released yesterday, also dampened sentiment.

However, across-the-board buying after the decline in the market over the last few days turned the tide and the indices jumped into positive territory in the first half hour itself, pushing all sectoral gauges into the green. The gains continued through the session with the market scaling the day's high in the late session. At their intra-day highs, the benchmarks touched at 19,737 and 5,924.

The market closed slightly below these levels, as the Sensex surged 434 points to close at 19,697 and the Nifty gained 126 points to settle at 5,911, erasing the losses of the last five sessions.

Wall Street closed with marginal gains on Wednesday in a choppy session following president Barack Obama’s budget speech, which called for a reduction in the budget deficit by $4 trillion over 12 years. While JP Morgan Chase reported a 67% jump in quarterly profit, financial stocks were a let-down as sanction regulators ordered 14 largest US mortgage servicers to pay back homeowners for losses from foreclosures or loans that were mishandled in the wake of the housing collapse. JP Morgan fell 0.8% and Bank of America tumbled 1.5%, to 13.27.

Presenting his long-term plan for closing the federal budget shortfall, president Obama set a target of reducing the annual US deficit to 2.5% of gross domestic product by 2015, compared with 10.9% of GDP projected for this year.

The Dow rose 7.41 points (0.06%) to 12,270.99, the S&P 500 added 0.25 of a point (0.02%) to 1,314.41 and the Nasdaq gained 16.73 points (0.61%) to 2,761.52.

Markets in Asia were lower in early trade on Thursday as a stronger yen pushed export-related companies lower. Besides, lower metal prices dragged commodity stocks lower. The London Metal Exchange Index of prices for six industrial metals including copper and aluminium fell 1.2% on Wednesday.

Meanwhile, Singapore’s first quarter GDP rose 8.5% from the year-ago figure, exceeding analysts’ estimates for a 6% rise. The central bank also said inflation in the city-state this year will likely come in at the upper half of its 3%-4% forecast range.

The Shanghai Composite fell 0.08%, the Hang Seng declined 0.83%, the Jakarta Composite was down 0.53%, the KLSE Composite shed 0.23%, the Nikkei 225 declined 0.59%, the Straits Times contracted 0.35% and the Seoul Composite was down 0.21%. On the other hand, the Taiwan Weighted gained 0.09%.

Back home, the Telecom Regulatory Authority of India (TRAI) has recommended that telecom infrastructure be considered as general infrastructure and make tax benefits available to the sector. The regulator has recommended bringing telecom infra companies (Infrastructure Provider-1) under Unified Licences, a suggestion which was opposed by participants at roundtable conference held by the telecom ministry in early March.


Private equity firms and broken-down model of broking firms – I

For private equity firms trying to make a quick buck from their investments in stock broking firms, the horror show seems endless. The first of a three-part series

On Wednesday, Geojit BNP Paribas Financial Services reported an 8% decline in revenue and 65% crash in net profit, for the quarter ended March 2011, over the corresponding previous quarter. Other broking companies haven't reported results so far, but nobody is expecting them to do wonders. What does this mean for a set of private equity firms, which lemming-like, had been clamouring for a piece of the business of stock broking firm in 2007? Very simply, the horror show continues.

Look at the stock performance of these companies from their lifetime highs of 2008. Emkay Global Financial has crashed by 84%, Edelweiss Capital has collapsed by 78%, India Infoline has fallen by 80%, Indiabulls Securities is down by 87%, JM Financial by 84%, Motilal Oswal Securities by 70% and Networth Stock Broking has slumped by 77%. Over this period, the Sensex is down by only about 5%.

This is not what the smart private equity investors who had jumped into the broking companies were hoping for. It was the pre-crisis period of 2007-08, when PE firms were investing in well-established broking companies which were on the path of huge expansion. The idea of course was to offload them within a couple of years to an eager public. What could be easier? After all, they have played the game many times before. Citigroup Venture Capital bought an 85% stake in Sharekhan, India Capital Growth Fund and Caledonia Investments took a stake in Rajkot-based Marwadi Shares, Barings bought a 45% stake in JRG Securities, Gaja Capital a stake in Bonanza and IFC Washington a stake in Angel, among others.

But their timing couldn't have been worse. Within a few months of their investment, financial turmoil rocked the world, deep crises hitting Western economies particularly hard. Brokerage income collapsed. And even though the overall market revived and real businesses are doing well, private equity firms find that they are still badly stuck with their investments in Indian broking firms. So, what went wrong?

In 2007, when the private equity players rushed into unlisted broking companies, they expected a continuation of the long bull market that started in 2003. This would mean robust market volumes and increasing brokerage income. It turned out to be quite different. When the Sensex was at 20,000, in December 2007, there was some optimism among a section of retail investors. Mutual funds were drawing net positive inflows from individual investors.

The mood this time is one of caution, with individual investors busy reducing their stock portfolios and redeeming their fund investments. There are specific reasons why broking income has collapsed now, some of which would have been clear even in 2007, but nobody wanted to see. And so, in 2007, at the height of the euphoria, the assumptions used to project income and profits were deeply flawed.

In the situation they find themselves in, how would private equity players recover their investment or even make an exit from their investments? The investment attractiveness of stockbroking firms has turned out to be a trap. The PE firms have no easy exits. Public issues of broking firms are unthinkable and there are no buyers of their stakes. Scope for 'consolidation' is low for fundamental reasons.

The point is, is this likely to change? When will things change for broking firms and how? Can things really improve for the big brokers, who have expanded with PE money, and are saddled with an inherently-flawed business model? That is what we will highlight in the second part of this series when we discuss the model of broking firms.

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6 years ago

Good article, looking forward to the Series 2. My investments are also stuck in one of the broking firms and it is ~50% down from my invested levels. I do not see any recovery in the near future, only consolidation can help these firms come out.

Uppai Mappla

6 years ago

I think the article analyses the past correctly. Lack of retail participation in the stock market was a worldwide phenomenon, not just in India. There is a strong possibility that the retail participation will return. Retail investors typical buy stocks for delivery. Unless there is another recession coming, brokerages (especially the "smart" tech savvy ones) will have increased business. And unlike the previous retail bull runs,this one will be spearheaded by youngsters through social media. I recommend Geojit, Indiabulls Securities etc. as having bottomed out and poised to rise.

Srinivasareddy M

6 years ago

Well said about the industry and growth pattern.

Amol Erande

6 years ago

The broking industry seems to have gone to the dogs.Its payback time for many of these broking firms. They are reaping what they have sowed: the humongous wealth destruction of the clients portfolios!!. In their blind greed for revenues and bonuses supported by a flawed business model, the term "client Interest" was and still is pretty much forgotten. It is high time these exceptionally intelligent top managements come to their senses and take a more rational approach.

Nitin B

6 years ago

This is a very thoughtful article at the right time before further damage can be done.
The greed to create huge volumes ( for brokerage earning-the mainstay of the business).
The Cos are not holding on to the existing clients with better plans
spending more money on chasing new
and more.
There is always a remedy available before it is too late if rational approach is implemented.
.PE firms can also recover their investments.

suresh sharma

6 years ago

Your commentary seems to be exclusive
bec either Others dont know as well as yu do or are hesitant to speak the truth
Or, the PE Players have been unethical in driving their Products by Greed and not
be the "creative Investors " as they 'should"
suresh sharma


6 years ago

With the brokerage levels plummeting to 0.15% to .25% for retail customers and around .10% to .125% for institutional trades there is no way the stock broking companies will earn money. The cost of labour has gone up so have other expenes


H Trivedi

In Reply to S.P.Dhanapal 6 years ago

Brokerage shrikange is not the reason behind fall of the broking firm. But their unethical mal practices are. To earn revenue They used short term means. And never thinked of the long term repocations of their doings.

Vinay Joshi

6 years ago

This is a red signal for gullible investors to stay away from such broking firms, to avoid unfounded tips, penny stocks or stocks w/o cash balances, in short herd mentality.
Always have your transactions dr/cr to your demat a/c only.

Better option should be to invest in IPO's but with ASBA a/c.

Never ever give Power of Attorney to broker/trader, illegal it is.


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