Mutual funds (MFs) are latching on to the global diversification theme, with at least three fund houses launching schemes that invest in global equities in the past few weeks.
Earlier this month, Edelweiss Asset Management announced a partnership with MSCI Inc to launch Edelweiss MSCI India Domestic & World Healthcare 45 Index Fund. The thematic passive index fund is designed with the objective of providing Indian investors access to both Indian and global healthcare companies. The NFO closes on October 20.
Seventy per cent of the fund’s weightage is on Indian healthcare, comprising top 25 stocks based on full market cap. The remaining 30 per cent weightage will be on 20 stocks listed in the US, which comprise top 5 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, MD & CEO, 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-cap stocks by market cap 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% of the S&P 500 (INR) Index and 85 per cent of the Nifty 100 Index 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 4 to 6 sectors and include stable and high growth businesses with a global brand franchise,’’ said Rajat Jain, chief investment officer, Principal Asset Management.
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According to experts, a globally diversified portfolio will help investors take advantage of market cycles in different economies, while also mitigating a single-country risk. US equities remain the top choice for market players owing to the strength and dynamism of the local economy, capital investment, and global diversification. Structurally, the US market is exposed to high-growth industries and over 50 per cent of markets earnings are derived from 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 market cap are just over 3 per cent of global GDP/market 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.
Early 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 scheme from the Axis AMC stable after Axis Growth Opportunities Fund and Axis ESG Equity Fund that provide exposure to global equities. 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, but are currently mispriced. The fund does not restrict itself to US equities.
Earlier this year, Motilal Oswal Asset Management 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 currently with total assets of about Rs 5,800 crore, according to Value Research. Thirty two of these are equity-oriented and nine of them focus on the US market.
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