Funds with exposure to top-notch global stocks attract investor attention

Demand spurred by healthy returns and a chance to play in stocks such as Alphabet Inc, Microsoft and Facebook

While passive schemes such as exchange traded funds (ETFs) and index funds focused on international indices have seen huge demand from investors, active funds with overseas stocks holdings have also been delivering positive returns over the past few years.

Parag Parikh Flexicap Fund has given returns of 49.23 per cent during the past one year, while the seven-year return of the fund is around 19.06 per cent, shows data from Value Research. Parag Parikh Flexicap Fund, which can invest up to 35 per cent in overseas securities, owns stocks such as Alphabet Inc, Microsoft Corporation and Facebook, among others.

“We look for large global multinational companies for investments. Preferably, they should not be operating in only one geography as we will again be taking country specific risks in that country. They should be globalised businesses deriving their benefits from all around the globe. This ensures that we are truly diversified internationally,” said Neil Parag Parikh, Chairman and CEO of PPFAS MF.

Having an international allocation also offers investors an opportunity to participate in globally known international companies. Even the diversification significantly reduces country specific risk and lowers the portfolio volatility.

Another fund, Axis Growth Opportunities fund has also generated strong returns of 58.15 per cent in the last one year. Since its launch in October 2018, the fund has given a return of 29.06 per cent.

“The purpose of blending an international component is to allow investors to participate meaningfully in both sets of opportunities in a tax efficient manner such that investors get the best of both worlds with meaningfully lower volatility in long term returns and a lower risk profile as compared to standalone domestic or international funds,” said Jinesh Gopani, head equity, Axis Mutual Fund.

Axis Growth Opportunities Fund is a large and midcap strategy which targets high growth companies and offers investors a flavour of international diversification. Developed and managed along with their advisory partner Schroders, the international allocation aims to invest in globally competitive companies which fall into growth-oriented moats that are identified through fundamental and a data driven research approach.

Since start of this calendar year, funds houses have launched 10 several international focused passive funds. Since January this year fund houses have collected over Rs 4,753 crore from launching various international funds (which are also fund of funds investing overseas).

While more demand has been towards passive funds and can give market linked returns, active funds have capabilities to deliver higher returns over longer time frames.

“Active strategies can potentially outperform during secular market up-trends where there is broad based participation while passive strategies are ideal of investors seeking to benefit from the asset class growth without taking any non-systematic risk (divergence from benchmark),”said Arun Sundaresan, Head Product Management, Nippon India Mutual Fund.