European economic crisis deepens, mutual funds take the heat

MUMBAI: When domestic mutual funds launched schemes that invest in Euopean companies early this year, their sales pitch was that the region's shares would outperform emerging markets driven by a recovery in the economies. But, with Europe's economic crisis becoming more acute by the day, investors may be left high and dry.

Four mutual fund schemes belonging to DWS, Franklin Templeton, Religare and JP Morgan, which invest in shares of companies in Europe, are in the red since their launch in early 2014. So far in 2014, MSCI Europe has so far lost 5.31 per cent as compared to 24.41 per cent returns given by CNX Nifty. Schemes investing in Europe have also reported losses in the range of 6 per cent to 12 per cent.

"Investors were anticipating European economy to recover the way US did. However, some countries in Europe are battling deflation and there is no earnings growth which caused downward movement in stock markets," says Ashish Shanker, head investment advisory, Motilal Oswal Wealth Management.

The schemes were marketed to investors on the grounds that the European economy is about to come out of woods and it was the right time to benefit from possible earnings growth in addition to geographical diversification such schemes offer. The outperformance of European shares in 2013 added to their glitter. MSCI Europe index rose 25.95 per cent 2013 against 5.93 per cent gains in the CNX Nifty. The total assets under management of such schemes is about Rs 500 crore.

"Fiscal consolidation, financial deleveraging and fragmented funding costs should result in a slower-than-expected economic recovery in the European Union," says Hemendra Aran, CEO & Founder, Aranca, a global research and analytics firm.