Mutual funds (MFs) are latching on to the global diversification theme, and at least three fund houses have launched schemes that invest in global equities in the past few weeks.
Earlier this month, Edelweiss Asset Management announced a partnership with MSCI to launch Edelweiss MSCI India Domestic & World Healthcare 45 Index Fund. The thematic passive index fund provides Indian investors access to both domestic and global healthcare companies. The new fund offer (NFO) closes on October 20.
Seventy per cent of the fund’s weighting is on Indian healthcare, comprising top 25 stocks based on full market cap. The remaining 30 per cent will be on 20 stocks listed in the US, comprising the top five stocks based on full market cap from four sub-industries each — pharmaceuticals, healthcare equipment, biotechnology, and life sciences tools and services. A few of the top holdings of the underlying fund include Apollo Hospitals, Cipla, Dr Reddy’s Laboratories, Jubilant Life science, Biocon, and Pfizer.
Radhika Gupta, managing director and chief executive officer of Edelweiss Asset Management, said: “We believe that this fund will provide investors with an easy, low-cost and undiluted access to promising healthcare companies in India and around the world. Given the rise in lifestyle diseases and the uptick in spending to treat them, the healthcare sector is primed to grow steadily over the next decade.”
Principal Asset Management has hit the market with Principal Large Cap Fund, an open-ended equity scheme predominantly investing in large-cap stocks. The fund will allocate 80-85 per cent of its corpus to the top 100 Indian large-caps and invest up to 15 per cent in US stocks, with a market cap higher than $50 billion.
“Our research indicates that a composite Index of 15 per cent of the S&P 500 (INR) Index and 85 per cent of the Nifty100 outperforms the Indian indices in multiple trailing periods and has lower volatility. The allocation to US large-cap companies would comprise up to 15 stocks from around four to six sectors,’’ said Rajat Jain, chief investment officer, Principal Asset Management.
According to experts, a globally diversified portfolio will help investors take advantage of market cycles in different economies, while also mitigating single-country risk. US equities remain the top choice owing to the strength and dynamism of the economy, capital investment, and global diversification. Structurally, the US market is exposed to high-growth industries and over 50 per cent of market earnings are derived overseas.
“Diversification usually brings down volatility. By investing overwhelmingly in their own country, investors potentially miss out on investment opportunities outside. While the Indian economy has been performing relatively well, the fact is India’s GDP and m-cap are just over 3 per cent of global GDP/m-cap,” said Mustafa Sagun, CIO, Principal Global Equities, adding that the Indian rupee’s depreciation against the US dollar can also contribute to returns for funds that invest in US equities.
Last month, Axis AMC announced its first dedicated global feeder fund, Axis Global Equity Alpha Fund of Fund, an open-ended scheme that will invest in Schroder International Selection Fund Global Equity Alpha (SISFGEA). This was the third such scheme from the Axis AMC stable after Axis Growth Opportunities Fund and Axis ESG Equity Fund.
SISFGEA, managed by the Schroders Global Equities team based in London, uses a bottom-up approach to pick quality growth companies that offer a sustainable competitive advantage that are currently mispriced. The fund does not restrict itself to US equities.
Earlier this year, Motilal Oswal Asset Management had launched an index fund that tracks the S&P 500 and Edelweiss had launched Edelweiss US Technology Equity Fund of Fund (FOF).
There are 40 international funds in the market, with total assets of about Rs 5,800 crore, according to Value Research. Thirty two of these are equity-oriented and nine focus on the US market.