Many of us want to have exposure to international equities and debt securities but do not know a way to do so. International Mutual Funds fill this gap. International Mutual funds are funds that are mainly invested in equities and debt securities of companies listed outside India like Apple, Alibaba, etc.
International Funds provide investors the much needed diversification by investing in high growth equities of some developed markets. Investors can also hedge against a depreciating rupee through international equities like the US. They also safeguard investors from any negative event that might happen in the domestic markets.
Below are some International Mutual Funds investors can look out for:
Edelweiss China Equity Offshore Fund (Active Fund):
Edelweiss China Equity Offshore is a fund of fund. A Fund of Funds (FoF) is an investment fund that does not directly invest in financial securities but invests in other investment funds, such as MFs, ETFs, and private equity funds. FoF pools investors’ money, which is then actively managed by a portfolio manager.
The fund is mainly invested in JPMorgan Funds – Greater China Fund, which further holds a portfolio of companies running their activity in, or generating revenue from China, Hong Kong, and Taiwan region. The current Assets Under Management (AUM) of this fund stands at Rs. 1,271 Crores and has given an annualized return of 26.3% in the past 5 years. MSCI Golden Dragon index is the underlying index is the benchmark for this fund.
We believe that it this fund has the potential to provide above normal returns to investors due to its allocation in emerging economies outside India. It uses a micro approach to select companies with future growth potential and provide significant return. The fund is actively managed and also tries to maximize the gains of its investors. It charges an expense ratio of 1.32%.
Motilal Oswal S&P 500 Index Fund (Passive Fund):
Motilal Oswal S&P 500 Index Fund is a Passive mutual fund, that directly tracks the performance of the US S&P 500 index. It invests in the 500 companies there on the S&P 500 index, in the same weights as there in the Index. This fund usually charges a low expense ratio which increases investors’ total return.
This fund is a passively managed fund since it only tracks the broad US equity markets. The top holdings of the index fund include Apple, Microsoft and Amazon. The fund has a size of Rs. 1088.3 Cr. and it was incorporated in April 2020. Within the year, the S&P 500 index has provided an annualised return of 13.81%.
The fund is suited for investors who want to take advantage of the market-wide risk and return. The fund is highly diversified and provides maximum risk reduction to any investor. The fund charges an expense ratio of 0.49%, which is within the average range.
Team Tavaga strongly believes that the future belongs to passive investments, especially for global investing. Therefore, the S&P 500 index fund and the N100 ETF are the only two passive funds we endorse. Investor must consider consulting his/her financial advisor before investing.
PGIM India Global Equity Opportunities Fund (Active Fund):
PGIM India Global Equity Opportunities Fund is an international fund offered by PGIM Mutual Funds India. It is a fund investing in global funds and has 60% of its AUM invested in US equities. PGIM Jennison Global Equity Opportunities Fund is the main underlying of this fund.
The fund is actively managed and tries to beat its benchmark MSCI AII Country World Index. The fund’s ideology is to find future leaders in various parts of the world and be a part of their growth. The main sectors under this fund are IT and Consumer Discretionary industries, constituting up to 80% of the fund.
The fund provides high-risk high growth opportunities to investors. The fund also provides some diversification benefits as it is 60% invested in the US and 40% in other countries. With a fund size of Rs. 865.3 Cr., the annualized return for the past 5 years is 22.6%. But the expense ratio for the regular plan is 1.39% plus the added fee of the fund. This means the fund needs to outperform its benchmark constantly to give significant returns compared to the peers.
Nippon India Japan Equity Fund (Active Fund)
As the name suggests, the Nippon India Japan Equity Fund is a mutual fund managed by Nippon and invests in equity securities listen across Japanese stock exchanges.
The fund tries to generate capital gains in the long run for its investors. Alongside, it tries to provide consistent returns by investing a part of the fund in money market instruments and bonds. The fund is 90% invested in equities and 10% in other instruments. Within equities, the sectoral weights are more towards engineering (22%), FMCG (10%) and Automobile companies (10%).
The fund has provided an annualised return of 10.9% which is below the peers. The fund also charges an expense ratio of 0.24%. Nippon India Japan equity Fund lacks investments in the IT industry in a global scenario of technology advancements, and could be a deterrent while choosing to invest in this fund.
Franklin India Feeder – Franklin U.S. Opportunities Fund
This feeder fund, or fund of fund, invests in Franklin US Opportunities Fund. The fund invests in small, mid, and Large-cap companies of the United States who display strong growth potential.
The underlying benchmark is the Russell 3000 index of the US. Franklin India Feeder Fund is weighted 40% towards the IT sector and 18% of the healthcare sector, which are dominant themes right now. The fund was integrated in 2000 and has a track record to verify its performance.
The 5-year annualized return for the fund is 22.5%, but the fund has failed to beat its benchmark, Russell 3000 in any period of time. The fund has an AUM of Rs. 2889.5 Cr. with an expense ratio of 1.6% along with the fee charged by the underlying Franklin US Opportunities Fund which makes this fund a bit more expensive for investors.
Motilal Oswal Nasdaq 100 ETF
Motilal Oswal Nasdaq 100 is a passively managed Exchange Traded Fund (ETF). The fund tracks the Nasdaq 100 index and invests in the top 100 non-financial US equities. Being an ETF, this fund charges a low expense ratio.
The underlying benchmark index is the US Nasdaq 100 index which the fund tries to track with majority of the AUM invested in large-cap tech companies of the US. The fund provides diversification benefits since it includes 100 stocks and gives the investor an advantage in terms of risk and return.
The NASDAQ 100 ETF has provided an annualized return of 28.3% over the last 5 years. With the growing importance of the IT sector, this fund has great potential for future returns. With an expense ratio of just 0.59%, Nasdaq 100 ETF seems attractive for an investor looking to add international equities to his portfolio.
International Index funds (ETFs) provide investors will the multiple added benefits. ETFs:
- Track the broader index
- Provide Diversification benefits
- Passively Managed
- Low Expense Ratio
Since an average Indian investor can not track the international markets on a continued basis. While few international funds have successfully beaten the passively managed international mutual funds, the future is always uncertain for active mutual funds like we’ve argued in our earlier blogs. Low-cost passive funds such as Nasdaq FoF and S&P 500 Index Fund have always delivered double-digit returns in the past and provided diversification benefits along with Rupee-cost benefits.
Disclaimer: Kindly consult your financial advisor before buying any fund
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