Shares of large foreign companies with a global presence, like Apple, Facebook, Amazon, Netflix, Alibaba, Pfizer and Microsoft braved the ill effects of COVID-19 seen in stock markets and soared in May.
In fact, in 2020, as consumers around the world stayed indoors amid the pandemic, the stocks that gained were mainly from the tech, e-commerce or pharma sector with consumers across the globe. Consequently, Indian mutual fund schemes with investments in these international stocks have given robust returns to its investors.
According to data from Value Research, a mutual fund research firm, mutual funds that invest in the overseas market gave returns of 3.98 percent in May, the highest average returns when compared to other categories of mutual funds in India. The data compares mutual fund schemes that Indian resident investors can buy in the country.
Among those mutual fund schemes in India that invest in international funds, Edelweiss US Technology Equity FoF and PGIM Ìndia Global Opportunities Fund delivered the best average returns of 10.75 percent and 10.65 percent, respectively.
Apart from the strong global markets, the outperformance of selective themes when compared to those with more exposure to offline sales, and rupee's depreciation after the COVID-19 outbreak helped Indian investors gain from their investment in these schemes. The change in the dollar-rupee exchange rate adds to the gains made from the outperformance of stocks picked in the scheme.
Should you invest in international mutual funds?
Diversification is an important element in an investment portfolio to balance market risks. With increased access to international markets, you can also diversify your investment geographically apart from asset wise. There are schemes that have specific themes like US tech company schemes that invest blue chips like Netflix, Apple, Amazon, Facebook and Google, schemes that allow you to invest in Chinese companies like Alibaba and some schemes that focus on large foreign banks.
Financial planners often advise that an investor should park about 10 percent of their investment in international funds. Apart from reaping the benefits of their outperformance, investing in stocks of advanced economies will protect your investment from volatility seen in the Indian markets.
India is an emerging economy and in the eyes of foreign investors, it is a high-risk-high-reward market. When a global crisis like the COVID-19 outbreak or US-China trade war happens, these foreign investors withdraw their money from emerging markets and park them in either safer investments like gold/US dollars or in advanced economies like the US.
Even if these overseas investments do not rise sharply, the gains of USD will give good returns for your rupee-denominated investment. In fact, it is a good way to protect your overall investment portfolio against the volatility of the Indian rupee.
However, make sure you pick the right geography for your investment and the right mutual fund as you will be exposed to country-specific or sector-specific risks. You can consult a financial planner on what will suit your portfolio best. You may choose to invest in more than two geographies to withstand volatility better.
The article is not a solicitation to buy, sell in securities mentioned in the article. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article.