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ULIP INSURANCE

Diversify Portfolio by Investing in US Focused Mutual Funds

Karan Sharma Karan Sharma 11 October 2019

The United States has a highly developed and advanced economy. The US markets have delivered significant returns over previous and current market cycles.

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Due to current poor economic conditions, Equity mutual funds (domestic) are not performing well in India. The same is applicable to debt markets. There has been consistent volatility since the past 1 year. Even investments made via Systematic Investment Plan have declined across mutual funds. One category which has defied all odds are the US focused mutual funds. US focused mutual funds have been consistently performing well over the past 3 years. US focused mutual funds and Exchange Traded Fund performed better than domestic mutual funds across all categories (large, mid and small cap). These have also performed better than domestic indices.

There are five Fund of Funds - domestic funds investing in their respective parent’s/others’ mutual fund units in the US – and one ETF focused on the US.

Fund NameReturns (%) Year to DateReturns (%) 1 YearReturns (%) 3 Year
Franklin US Opportunities Fund26.59.317.4
Motilal Oswal NASDAQ 100 ETF24.46.418.4
Reliance US Equity Opportunities Fund21.513.116.1
ICICI Pru US Bluechip Equity17.38.513.1
Kotak US Equity - Standard Plan14.22.611.1
DSP US Flexible Equity14.1-0.312.6
S&P 500 (US)14.82.29.7
Sensex TRI4.5-0.111.2
NASDAQ 100 TRI20.14.519.5
Large Cap1.9-3.58.7
Multicap0.9-5.08.1
Mid Cap-5.0-10.55.5

Source: moneycontrol.com

In comparison to diversified equity schemes (domestic) which provided average returns ranging from -5% to 1.9%, US-focused funds delivered returns of up to14% to 26%. For a 3 year period, US focused Fund of Funds (FoFs) delivered 11 to 19% returns (compounded annual return) while domestic funds provided a meagre 5 to 9%.

US-focused funds perform better than domestic funds because the US economy has a very healthy GDP growth, record-low unemployment figures, a large number of buybacks, and higher corporate earnings. Indices comprising of tech, pharma and FMCG stocks are at an all-time high. Also, the US Federal Reserve has not given a rate cut, which means that the USD has strengthened and will continue to do against other currencies. In addition, the US has corporation giants such as Google, Apple, Microsoft, Facebook, Netflix, Intel and GE, Ford which are market leaders across several countries.

Advantages of Investing in US-focused Mutual Funds

  1. These funds provide the opportunity to enter American markets. An investor can invest in industries such as semiconductors, electronics, technology etc., which have a limited presence in India.

  2. You get to invest in dollar; there has been a structural decline in the rupee over the past decade against the dollar.

  3. Low correlation between the movement of Indian and US markets.

  4. The US government’s fiscal boost along with corporate buybacks has led to US market outperforming Indian market.

How much to Invest?

Investment in US-focused stocks should be around 15% to 20% of your portfolio or as advised by a financial planner. As per the RBI notification in Liberalised Remittance Scheme (LRS), an Indian investor can only invest up to $250,000 overseas per year. With the current exchange rate of (1USD = Rs 71.08), this amount turns out to be over 1.77 Crores.

Investing in global markets can be expensive because you will be making transactions in another currency. If you are investing in NASDAQ (American stock market), you will be making transactions (brokerage fees, bank fees, etc.) in USD. The brokerage as well as commissions are higher in comparison to Indian stock market.

Another important consideration is that profits earned are subjected to currency exchange rate. Example: Suppose you purchase a stock when 1 USD was Rs. 68 and sold it when 1 USD was Rs. 62. Due to decline in the value of USD, you have lost 8.8% due to change in exchange rate.

Fund Details

Franklin India Feeder Franklin US Opportunities Fund

CriteriaDefinition
NameFranklin India Feeder Franklin US Opportunities Fund
AUM (Rs)955 crore (As on Aug 31, 2019)
BenchmarkRussell 3000 Growth
RiskHigh
Fund ManagerSrikesh Karunakaran Nair, Grant Bowers & Sara Araghi
1 Year Return (%)-0.59
3 Year Return (%)15.91
5 Year Return (%)12.16

Motilal Oswal NASDAQ 100 ETF

CriteriaDefinition
NameMotilal Oswal NASDAQ 100 ETF
AUM (Rs)206 crore (As on Aug 31, 2019)
BenchmarkNasdaq 100 TRI
RiskHigh
Fund ManagerMr. Swapnil Mayekar
1 Year Return (%)1.97
3 Year Return (%)18.61
5 Year Return (%)17.03

Reliance US Equity Opportunities Fund

CriteriaDefinition
NameReliance US Equity Opportunities Fund
AUM (Rs)52 crore (As on Aug 31, 2019)
BenchmarkS&P 500 TRI
RiskHigh
Fund ManagerAnju Chhajer (Since Jul 2015), Kinjal Desai (Since May 2018)
1 Year Return (%)4.47
3 Year Return (%)14.98
5 Year Return (%)NA

ICICI Pru US Bluechip Equity

CriteriaDefinition
NameICICI Pru US Bluechip Equity
AUM (Rs)308 crore (As on Aug 31, 2019)
Benchmark308 crore (As on Aug 31, 2019)
RiskHigh
Fund ManagerUS Portion - Ms. Priyanka Khandelwal India Debt Portion - Mr. Rohan Maru
1 Year Return (%)3.73
3 Year Return (%)14.68
5 Year Return (%)10.88

Kotak US Equity - Standard Plan

CriteriaDefinition
NameKotak US Equity - Standard Plan
AUM (Rs)12 crore (As on Aug 31, 2019)
BenchmarkS&P 500 TRI
RiskHigh
Fund ManagerArjun Khanna
1 Year Return (%)-4.21
3 Year Return (%)11.33
5 Year Return (%)9.54

DSP US Flexible Equity

CriteriaDefinition
NameDSP US Flexible Equity
AUM (Rs)235 crore (As on Aug 31, 2019)
BenchmarkRussell 1000
RiskHigh
Fund ManagerJAY KOTHARi KEDAR KARNIK LAUKIK BAGWE
1 Year Return (%)-4.12
3 Year Return (%)13.46
5 Year Return (%)10.56

Conclusion

US-focused funds have been performing pretty well over the past years. It is a good investment option. It is therefore, advisable to park at least 10% of your portfolio in foreign ETFs or direct plans of FoFs. However, you must ensure that you have a proper financial plan in mind. Many financial advisors have a specific set of stocks which can be recommended as per your risk appetite.

Recommended Read: Mutual Fund Industry in India

Karan Sharma
Written by Karan Sharma
Content Specialist and Strategist, foolishly creative and always ready for a game of 'Call of Duty'.