Tipping Point: US-focused funds enjoyed long bull run. Time to be cautious?

US-focused funds have given Indian investors good returns since 2012 (see table). The trailing five-year return of this category is 15.74 per cent. Currently there are seven funds in the category.

US funds are recommended to Indian investors for international diversification because the US belongs to the developed market basket while the Indian market falls in the emerging market basket.

The correlation between the two markets, while positive, is low. Also, many of the companies that these funds invest in are multinationals, which get their revenue from across the world, and hence provide you with global diversification. However, as we saw in the case of Indian mid- and small-cap funds, the bull run in every asset class comes to an end finally. This may happen to the US equity market as well, especially with the US Fed hiking rates. Hence, have only a limited exposure of 10-15 per cent of your equity portfolio to this category.