Experts say the large stimulus package in the US will help in reviving its economy. In the one-year period, the international category of funds has given returns of 6.8 per cent, whereas domestic-oriented large-cap funds have seen negative returns of 19 per cent in the same period, showed the data from Value Research.
Some wealth managers are suggesting investors opt for the liberalised remittance scheme of (LRS) and directly invest in global exchange-traded funds (ETFs), instead of feeder funds offered by mutual funds
“For investors with scale, we suggest them to consider the LRS route as there can be 1-2 per cent slippages in feeder funds. Apart from the technology-driven stocks, we are advising investors to consider global health-care ETFs, as the health-care theme is gaining traction in the wake of the Covid-19 pandemic,” said Rajesh Cheruvu, chief investment officer at Validus Wealth.
“We continue to suggest 10-20 per cent allocation to offshore products, depending on investors’ risk profile. The current crisis and the rupee's weakness have reinforced our thinking,” he said.
LRS provided by the Reserve Bank of India allows resident individuals to remit a certain amount of money during a financial year to another country for investment and expenditure.
Within the technology stocks, money managers say popular US technology stocks — FAANG (Facebook, Amazon, Apple, Netflix
— stand to benefit from the disruptions caused by Covid-19. “Businesses are likely to depend more on technology for meetings, interactions, and transactions. These will benefit foreign businesses, such as Zoom and Microsoft, which can facilitate these changes,” said a fund manager.
Industry participants say investors should look at such funds for diversification, rather than vehicles for chasing higher returns. “Investors can take 10-20 per cent allocation to such funds to lower the risks to their overall portfolio,” said Radhika Gupta, chief executive officer of Edelweiss Mutual Fund (MF).
In February, Edelweiss MF
launched US Technology Fund of Fund (FoF), giving exposure to US businesses that are technology-driven. More recently, Motilal Oswal
MF launched the S&P 500 index fund in April.
The FoF overseas category has seen sharp a pick-up in flows in recent months, though the size of flows is not yet comparable to other equity categories.
In the last six months, the average inflow in the category has been to the tune of Rs 112 crore, which is 2.5 times preceding six months’ average.
“From the perspective of asset allocation, it is useful for investors to take such allocations. However, expectations need to be tempered as the past behaviour patterns suggest investors tend to cut their exposure to such funds when they start to underperform. International funds also offer investors hedge to currency risks,” said Kaustubh Belapurkar, director (fund research) at Morningstar.