MFs scout for foreign investment opportunities as domestic markets teeter

Fund houses to launch schemes that will take exposures to global economies

Domestic mutual funds are getting ready to launch schemes that will take exposure to foreign economies as strong global headwinds take a toll on the country’s economy.  

Experts say given the current economic conditions, investors must have at least 5-10 per cent exposure to foreign economies.

They point out that a substantial level of investor exposure has been concentrated on domestic equities following the market rally seen in the last two years.

With regulatory approvals in place, IIFL AMC is likely to launch IIFL US Technology Fund this month. “When it comes to global growth stories, Indian investors are typically under-invested. Technology companies such as Facebook and Apple have grown by leaps and bounds in the last few years but Indian investors have not participated in these growth stories,” said Prashasta Seth, CEO of IIFL AMC. 

Seth added that the current economic situation is also favourable for launching such a fund as the strengthening of the dollar itself can add a few percentage points to such a scheme’s returns.

Consider this: A 12 per cent fall in the rupee against the dollar since the beginning of the calendar year would have turned a $100 investment in S&P500 into $114. This is without accounting for the capital appreciation the US stocks have seen this year. Developed economies such as Japan and US have given returns of 5-9 per cent in this year in dollar terms. In rupee terms, these returns get amplified to 20-24 per cent. The Nifty and Sensex have given returns of 5-7 per cent in rupee terms.

Radhika Gupta, CEO of Edelweiss MF, said: “While we already have quite a few international offerings, we have been in talks with our clients to understand whether this product basket needs to be further expanded. With domestic markets seeing volatility amid a depreciating rupee, investors are looking for opportunities to use the currency movement in their favour and at the same time hedge against this volatility.”

These opportunities may not necessarily be limited to the US markets. “China, Europe, the US and even some Asean countries have seen a good run recently,” Gupta added.

Axis Mutual Fund on Monday launched Axis Growth Opportunities Fund. The scheme will take 65-70 per cent exposure to domestic companies, while 30-35 per cent of the scheme will be exposed to overseas companies. The scheme will look for investment opportunities in emerging markets and geographies such as Americas, Europe, West Asia and Japan. The overseas investments will be made under advice from UK-headquartered Schroder Investment Management.  

Such funds give investors an option to invest in businesses that have little or no presence on the domestic bourses.

“While there are technology companies that are listed in India, these are largely B2B service-providers. In the US, technology companies are among the top R&D spenders as they continuously look to improve user-experiences through innovative products and systems,” Seth pointed out.

“We plan to launch a couple of more funds focusing on international economies at a later stage,” Seth added.

Year-to-date returns in rupee and dollar terms - India and others
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