Sundaram Global Brand Fund: Power of global brands

Sundaram Global Brand Fund

Sundaram Global Brand Fund, erstwhile Sundaram Global Advantage Fund, is a fund of fund which invests in shares of leading global brands. The past history of Sundaram Global Advantage fund is irrelevant for the purposes of this fund review because the fundamental attributes of the scheme was changed when the scheme was rebranded in 2019. The feeder fund (underlying scheme) of Sundaram Global Brand Fund is Sundaram Global Brand Fund, Singapore. Rohit Seksaria and Ratish B Varier are the fund managers of this scheme. The scheme benchmark is Dow Jones Industrial Average (DJIA) Total Returns Index (TRI).

Power of global brands

The trend of globalization, which began in the early 90s, is now firmly entrenched over the past 25 – 30 years. Global brands were usually associated with luxury spending e.g. apparel, accessories, expensive gadgets etc. 15 to 20 years back. Global brands now are part of your day to day lives. The toothpaste you use after you wake up in the morning, your breakfast cereal, your car, your computer software at work, your phone and the apps you use, your TV, your kids’ favourite fast food joints, video games etc. are all likely to be major global brands. The reach and influence of global brands is enormous. With rising disposable incomes, these brands will be able to reach an even larger consumer base in the future.

Characteristics of global brands

• These are global household names and leaders in their sphere of business.


• These companies have businesses spanning the globe and product categories.


• Global brands have stable operating margins owing to their ability of sustaining pricing power across economic cycles.


• They can generate sustainable cash-flows.


• Beneficiary of the global aspiration to buy more branded goods as disposable income rises.


• Most global brands are based in the developed markets, e.g. US, Germany, Japan etc.

Examples of global brands include Amazon, Microsoft, Apple, Google, McDonalds, Facebook, Toyota, Intel etc.

Investment strategy of Sundaram Global Brand Fund

Sundaram Global Brand Fund is a fund of fund (FOF). The underlying scheme of the FOF, Sundaram Global Brand Fund – Singapore, invests in the 30 top brands. The fund manager has preference for brands with geographically diversified revenues base in order to reduce single country risk. The portfolio splits the leading 30 brands into three bands. The top band comprises of Top 10 brands and each stock in the band to start with has 5% weight. The next band comprises of the next 10 brands and each stock in that band has 3% weight. The last band also comprises of 10 stocks and each stock has 2% weight. There are appropriate risk control mechanisms in place for concentration risk and sector risk.

Stock selection strategy

• Companies with businesses spanning the globe


• Global market leaders in their respective industry sectors


• Ability to sustain pricing power across economic cycles


• Ability to generate sustainable free cash flows


• Strong brands – household names

Performance of Sundaram Global Brand Fund

The table below shows the growth of Rs 10,000 in Sundaram Global Brand Fund versus its benchmark Dow Jones Industrial Average (DJIA) TRI and Nifty 50 TRI for the last 1 year period ending 31^st May 2020.

Source: Sundaram Mutual Fund, 31^st May 2021. Disclaimer: Past performance may or may not sustained in the future

Why invest in global equities?

• Sundaram Global Brand Fund gives you exposure to global growth opportunities which are not available in Indian stock markets. Indian companies do not have the kind of scale, global customer base, network effect and competitive advantage which global brands have.


• You can get exposure to mega-trends in sunrise sectors e.g. consumer internet (Alphabet, Facebook), e-commerce (Amazon) etc which are not available in India.


• You can diversify risks by investing in global equities. There is low correlation of returns of different market. Investing in global equities can diversify risk considerably and bring stability to your portfolio.


• You can benefit from Rupee depreciation versus the US Dollar or currencies of other large economies. Over the past 10 years, the Rupee has depreciated considerably versus the Dollar and may continue to depreciate in the future. Rupee depreciation can contribute to a significant portion of your returns from international equity.

Why invest in Sundaram Global Brand Fund?

• Exposure to world’s leading brands


• Geographical diversification benefits


• Consistent outperformance of underlying scheme, Sundaram Global Brand Fund, Singapore versus its benchmark


• Low volatility leading to excellent risk adjusted returns


• Benefit from Rupee Depreciation


• Portfolio of financially very strong companies

Conclusion

Investing in global brands is a very compelling proposition from a long term viewpoint. These are the strongest companies in the world and are likely to be much more resilient even in the face of economic uncertainties like the post COVID recovery scenario. Investors should note that fund of funds are taxed like debt funds. However, over investment horizon of 3 years or longer you can get indexation benefits. Investors should consult with their financial advisors if Sundaram Global Brand Fund is suitable for their investment needs.