International funds gain traction on returns, diversification boost

Apart from diversification, rupee depreciation has helped some global funds post returns of 42-44%

International funds offered by domestic mutual funds (MFs) have gained currency as investors have looked to limit their exposure to local stocks. This, coupled with the attractive returns generated by global markets, particularly technology stocks, over the last few years have further propelled asset managers to aggressively launch such international offerings.

Since January, fund houses have collected over Rs 4,753 crore from launching various international fund of funds (FoF). Besides, fund houses also offer exchange traded funds (ETFs) and index funds that invest in global stocks and indices.

The data from Value Research shows that in the last one-year international funds have given average returns of around 26.2 per cent. Within global funds, those investing in the US markets have done exceedingly well compared to Asian markets or emerging markets funds.

“One of the standout performances has been (that of) the US stocks. Post financial crisis and particularly since 2010, the US has outperformed most developed and large emerging markets. It was driven by several reasons including falling unemployment, inflation, interest rate, and corporate tax reductions. Even post-pandemic, US equities continued their dominance in terms of performance,” said Mahavir Kaswa, head of research, passive funds at Motilal Oswal MF.

Edelweiss US Technology Fund FoF has topped the charts, returning 44 per cent in the past one year. Principal Global Opportunities fund and Aditya Birla Sun Life Commodity Equities Fund-Global Agri Plan have given returns of around 42 per cent.

Apart from diversification, Indian rupee depreciation has helped global funds post positive returns. Recently, Kotak Global Innovation FoF collected Rs 1,612 crore from its new fund offer (NFO).

Recently, Mirae Asset NYSE FANG+ ETF, India’s first ETF which provides equal exposure to ten big-tech companies listed in the US, crossed Rs 1,000 crore assets under management (AUM) within three months of its launch.

Last month, IDFC MF also launched its first international fund IDFC US Equity Fund of Fund which is designed to offer investors an opportunity to invest in a growth-oriented portfolio of US stocks.

“IDFC US Equity FoF provides complementary addition to the investor’s portfolio as it has a low correlation with Indian equities, additionally, it offers investors the powerful opportunity of investing in US equities and participation in a significant global revenue pool,” stated Vishal Kapoor, CEO, IDFC MF.

Market participants say that investing in international equity should be looked at from the point of view of diversification at the portfolio level instead of only chasing returns.

“While it makes sense to start with US Equities, one should look for other opportunity sets such as developed markets excluding the US or basket of some of large emerging markets while investing in international equities,” added Kaswa.

Top performing international funds in the last one year
 

Fund Name	1 Yr Ret (%)
Edelweiss US Technology Equity Fund of Fund	44.04
Principal Global Opportunities Fund	42.14
Aditya Birla Sun Life Commodity Equities Fund - Global Agri Plan	42.01
DSP World Mining Fund	37.06
ICICI Prudential US Bluechip Equity Fund	35.68

 

Source: Value Research

Returns are for direct plans