Investment in stock market is the flavour of the season — so much so that it has expanded beyond Indian shores. People want to take exposure in international equities, especially in the US markets. Data shows international mutual funds have rallied as much as 58% in just last one year. Aditya BSL Intl Equity B Gr (58%), Aditya BSL Cmdty Eq Glb Agri Gr (47.40%), DSP World Mining Gr (46.71%), Principal Global Opps Gr (46.39%), Edelweiss US Technology Equity FoF RegGr (42.22%) and Edelweiss US Value Equity Offshore Rg Gr (38.34%) are the top performers over the last one-year.
If you missed the bus, should you invest now when the US markets are trading near all-time highs? Experts say investors may continue their investments and fresh investors should take the staggered route. Besides, funds in the European markets and emerging markets such as China appear attractive.
“It is true that US valuations are rich compared to historical averages. In addition, there are fears of looming inflation and US interest rate hike. Interestingly, asset class such as Emerging Markets look cheaper compared to the US. Hence, investors should continue to invest in U.S. markets however in the right proportion. US portfolios should be diversified across growth as well as cyclical sectors to position for inflation or rate hike scenarios,” says Sahil Contractor, Co-founder, dezerv.
Dhaval Kapadia, Director – Managed Portfolios, Morningstar Investment Adviser India, suggests diversifying the international portfolio among US, Europe and the emerging markets.
“If you have Rs 100 to invest, in a normal scenario putting in 50-60% in the US markets is fine. Given the recent valuations, lower the exposure slightly to 45-50% and the remaining portion can go into European and the Chinese markets which are looking attractive,” says Kapadia.
“Putting lump sum amount in the US or the European market is not appropriate at this juncture. One may consider it for the Chinese markets which have seem sharp correction,” he adds.
Kapadia further advises that a novice investor can also consider a global fund in which a fund manager will take a call in which international markets to invest.
There are about 50 mutual funds and exchange traded funds investing in different regions or a combination of regions in a single fund. The global exposure could be chosen in a manner that it provides support to your Indian portfolio. For example, if Indian markets fall, the global portfolio should extend some support. “Investors should look at correlation of international funds to Indian equities. In addition, comparison of metrics such as excess returns over a benchmark and volatility will help short list the funds,” says Contractor.
Cost also plays a role. If it is a fund of fund, then compare the total expense ratio of Indian fund management cost and also what the international fund costs. But more than the cost, focus on region.
“There are multiple US-focused funds where cost can be compared. But other categories do not have those many funds. While you should definitely look at cost, exposure to specific region holds more weightage, especially in the given scenario,” says Kapadia.
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