Need for Diversification – Overseas Investments.

Rationale for international exposure through funds:

  • Diversification: Different geographies have different risks. Also, the correlation in equity market movements are not perfect.

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  • Hedge against the dollar: International exposure helps as a buffer to the long term trend of INR Depreciation.

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  • Resilience displayed by Developed markets: Performance comparison – panic fall from peak in 2020 due to Covid19 and recovery from bottom till date after various stability measures are announced.

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  • Capital outflow risk in emerging markets: In the recent equity market sell off, there has been an outflow of more than $90 Billion from emerging markets. Similar outflows were observed during panic situations in 2000, 2008, 2013, etc. These create pressure on asset classes, currencies and also, sovereign ratings of the emerging market economies.
  • Investment limit of $2,50,000 p.a. under LRS (Liberalized Remittance Scheme, governed by RBI) does not apply to domestically available international funds.
  • Low transaction costs and ease of execution to create international assets

Observations:

As a risk mitigation, some % of equity allocation (10% -15%) to international exposure especially developed markets is desirable. This is a long term investment proposition to be built through SIPs. Some of the schemes available are as follows:

PGIM India Global Equity Opportunities Fund

  • Fund of fund – fully invests into PGIM Jennison Global Equity Opps $ I Acc (since 17th October 2018) – active fund which is country and sector agnostic. No cash calls.
  • Number of stocks: 35 – 45, Average position size: 1.5% to 4%
  • Smallest company allowed in portfolio: Market cap $1 billion
  • Exit Load: 1% up to 365 days. AUM – Rs 69 Cr

US Index Funds: 

The US has 25% share in world GDP, 54% share in global listed market cap and a long track record. Many US companies are global leaders and the businesses have 40% revenue (approx.) from oversees.

Motilal Oswal S&P 500 index Fund:

  • Invests in top 500 US listed companies (80% of total market cap). (Exit Load: 1% up to 3 months)

Motilal Oswal Nasdaq 100 Fund:

  • Includes top 100 non-financial companies.
  • AUM – Rs 298 crore, Exit Load – NIL
  • Please note: while S&P 500 is a diversified index, this is focused on technology oriented companies (46% of index). Also, there is stock concentration – Top 2 stocks make about 22% of index.

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