DSP Blackrock World Mining Fund
	Pankaj Sharma, Executive Vice President, DSP Blackrock responds to our questions about the fund and its positioning in investors’ portfolios

What is the commodity / mineral wise break-up of the fund's exposure to mining companies? What is the geographical exposure of this fund?

An exact break-up for each of the commodities is difficult to provide as there are Diversified# companies, which are engaged in mining different commodities. These normally have large multigeography operations. The name of some of such companies are Vale (earlier know as CVRD), Rio Tinto, BHP Billiton, Xstrata etc. A company like BHP Billiton has a portfolio covering (a) steel making material, which includes iron ore, metallurgical coal and manganese (b) Non-ferrous material, which includes Aluminium, Copper Nickel etc. (c) Energy products, which includes thermal coal, uranium etc.

An exact break-up for geographical exposure is not possible as there are Diversified companies, which are engaged in mining different commodities in different countries. They could be operating in one country whereas the equity security will be listed in some other country. A case in point is UK, which does not have a significant mining industry but has several companies like BHP Billiton, Rio Tinto and Xstrata listed in the London Stock Exchange. This will get counted as a UK exposure although the companies have virtually no operations in UK.

With these restrictions, the Sectoral and Geographical Allocation of BGF World Mining Fund as at October 30, 2009, is as follows:

How has the fund performed over long periods of time versus a composite comparable index of the underlying minerals that are represented in the mining companies that the fund invests in?

Performance as at October 30, 2009 of BGF World Mining Fund, compared with HSBC Global Mining Index (in INR terms).

To what extent has the "leverage" of owning mining companies versus the underlying minerals actually worked out for the fund over long periods of time?

While there is a directional movement in the stocks with response to the underlying commodities, it would be difficult to establish a precise correlation. The historical behavior of share prices of mining companies has demonstrated out-performance. This is exhibited by BlackRock’s World Mining Fund, which is portfolio of mining companies, as demonstrated below:

What is the peer-set for this fund and how has it performed versus its peers?

There is no defined peer set for the BGF World Mining Fund. This is arguably the largest fund in its metals and mining funds category with assets under management of $11.5billion as at October-end 09. The other funds have much larger investment theme, which encompasses the entire natural resources area.

What in your view is the long term case for owning the mining fund?

The investment argument for DSP BlackRock World Mining Fund is participation in global GDP growth. Post the financial crisis witnessed last year, the macro-economic indicators in developed economies are indicating towards economic growth vis-à-vis a GDP contraction witnessed earlier.

Likewise, the economic growth in the developing markets like India and China is also trending towards the average growth witnessed in the last decade. These are the signs of economic activity revival and this being the inflection point, we believe the growth in world GDP will create demand for commodities for years to come.

The industrialization and urbanization in developing countries is a socio-demographic change, which will create incremental demand for commodities for next few decades.

However, there are medium-term structural supply constraints for key commodities, such as copper, coking and steam coal, which have been exacerbated by financial crisis as the planned capital expenditure was not made by the mining companies in the aftermath of the financial crisis.

The demand outlook and supply tightness is expected to be supportive for commodity prices.

Would you see this as a tactical exposure or a core exposure in an investor's investment portfolio?

We believe this should be a core exposure and not a tactical exposure. Based on our investment argument, we believe Indian investors are investing in Indian equities as they are seeking growth assets in a growing economy. Likewise, this fund provides investors’ access to growth assets outside India in other parts of world where growth is being witnessed. It is a investment case on global growth through a fund which already has a 12 year performance track record and is now being launched in India.

What is the correlation of gold prices to other metals? Does this fund offer a diversification benefit or are correlations too strong among metals to allow that benefit?

We believe it does not merit discussing correlations amongst different metals/commodities as this is not a model based investment. The quantum of allocation to a particular commodity could vary from time to time and is dependent on the fund manager’s outlook on a particular commodity.

This is a diversified fund providing investors to stock selection skills of BlackRock’s Natural Resources team and investments across sectors (of mining industry). The performance statistics shared in question # 3 highlights the out-performance of the funds vis-à-vis traded metals and its benchmark.

Is there a broad enough universe of listed mining companies in India? Can one create a good exposure to the mining sector by owning shares of Indian companies?

Although the metals and mining sectors is a large sector in India, there are few very pure mining companies as majority of the companies in this sector have ore to metal integration. Some pure mining companies are Sesa Goa, Gujarat NRE Coke.

However, DSP BlackRock World Mining Fund provides investors’ access to international mining companies through BGF-World Mining Fund.

Are there any Indian companies that are owned by this fund?

The fund has a small exposure to Vedanta which owns Sterlite and Sesa Goa.

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