New investors should enter systematically with a minimum seven-year horizon

New investors should enter US-focused funds systematically with at least a seven-year horizon, while existing ones rebalance portfolios and moderate tech exposure amid high valuations

Investing in US equities has proved rewarding for Indian investors during a period of muted performance by domestic equities. While Indian flexicap funds returned 3.6 per cent over the past year, schemes investing in US markets delivered far higher gains. The S&P 500 index and the Nasdaq-100 have returned 18.5 per cent and 27.4 per cent, respectively. 

The US remains a robust and well-regulated market. “US equity markets have delivered strong returns over the past year, led by resilient earnings, AI (artificial intelligence)-driven productivity optimism, and a robust economy. While valuations are elevated in some segments, particularly largecap tech, the US remains the world’s most innovative and diversified economy,” says Pratik Oswal, head of passive funds, Motilal Oswal Asset Management Company (AMC). 

Strong momentum 

US equities may continue to perform well as the US Federal Reserve announced another policy rate cut on October 29. Trade tensions appear to be easing. “Tailwinds such as ongoing AI or productivity gains, consumer tech, cutting-edge healthcare solutions and health-tech with resilient domestic demand and rate cut can support equities,” says Abhishek Tiwari, chief executive officer, PGIM India Asset Management. 

“The growing strength of the US technology story, especially developments in AI and related innovations, is a major positive driver for US equity markets,” says Niranjan Avasthi, senior vice president, Edelweiss Mutual Fund. 

Valuation, inflation risk 

Investors should remain mindful of headwinds when considering allocations to US-focused funds. Valuations remain elevated, espec­ially in technology stocks. “Investors sho­uld be prepared for bouts of volatility. Expensive valuations and ren­e­wed inflationary concerns, possibly exacerbated by higher tariffs, pose potential risks,” says Avasthi. 

Narrow indices riskier 

Concentrated, tech-heavy indices carry greater risk than diversified benchmarks. “Narrower, tech-he­avy indices such as Nasdaq-100 or the FAANG basket have deliv­ered outsized returns, but they come with higher volatility and concentration risk. Broader indices like the S&P 500 offer balanced exposu­re across sectors and tend to be mo­re stable over cycles,” says Oswal. 

Focus on asset allocation 

Investors whose US allocation has exceeded target levels should rebalance through profit booking or by adding to other asset classes. “Treat US or global equity funds as a long-term diversifier, not a performance chase. Build positions gradually, and size AI-tech concentration carefully. Rebalance to target weights. If US exposure has run ahead, trim gains rather than exit completely. Maintain discipline and don’t stop systematic investment plans (SIPs) during corrections,” says Tiwari.

“Partial profit booking may be considered only if the allocation to US equities has become disproportionately high relative to one’s overall portfolio,” says Avasthi. 

New investors can begin slowly

  New investors or those with lower-than-planned exposure should add US-oriented funds through SIPs. Avoid lump-sum deployment. “New investors can consider entering gradually through SIPs, keeping a five-to-seven-year horizon. Existing investors can continue holding if their allocation aligns with long-term goals. A 10-15 per cent allocation to international or US-focused funds is ideal for most diversified portfolios,” says Oswal. 

Build overseas exposure with the intention to diversify. “Limit allocation to 10-20 per cent of the equity portfolio in global funds (with a US tilt) as a pragmatic diversification band, calibrated to risk tolerance. Have a minimum five-to-seven-year horizon to ride out economic cycles and curre­ncy effects. Rebalance annually. Lower long-term correlation with domestic markets supports diversification benefits,” says Tiwari. 

 

The writer is a Gurugram-based independent journalist