Wealth managers for US exposure

International funds delivered 6.8% returns in one year, against draw down sin domestic funds

Wealth managers are advising clients to make allocations to Us-oriented offshore investment products for exposure to the global technology and health-care businesses that are likely to benefit from the disruptions and challenges posed by the Covid19 pandemic.

“Following the outbreak of Covid-19, the rate of digital transition has increased significantly in the last two months. Investors are also now more receptive to international products, as weak returns have reduced the home bias,” said Ankur Maheshwari, chief executive officer of Equirus Wealth Management.

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 largecap 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 (MFS).

“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 and Alphabet- Google — 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 ~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.