MFs tap commodities via equity funds, ETFs

Mutual funds may still be waiting for approval to invest in commodity futures in India, but that has not stopped fund houses from launching commodity-centric equity funds and exchange-traded funds (ETFs) to get their pie of this booming sector.

“On Thursday, the equity markets are facing the challenge of high inflation. Commodities have a strong correlation with inflation and are also good for portfolio diversification,” said Vineet K Vohra, managing director and chief executive officer, ING Investment Management India.

Commodity cycles are typically long, and are not just for three-four years but could go on for as long as 10-15 years. So, there is still steam in the current bull-run, fund managers said.

They said major global funds, big pension funds such as California Public Employees Retirement System and fund houses have been diversifying their portfolio to include commodities to hedge against rising inflation, and also to get a share of the rise in commodity prices.

California Public Employees Retirement System, the largest pension scheme in US that has about $245 billion in assets, has target allocation of 5 per cent of the portfolio for commodities.

Mirae Asset Mutual Fund, Indian arm of Korea-based Mirae Asset Financial Group, recently launched Mirae Global Commodity Stocks Fund that closed subscriptions on July 23.