Relevance Of US Funds In MF Portfolio

Are you worried about falling domestic GDP growth? If you are, maybe it is just the excuse you need to add the 'American' touch to your investment portfolio. The Indian mutual fund industry allows you to invest in US funds and it may be a good time to consider investing in them now. Remember that though the Indian stock market has thousands of listed stocks, the actual investable universe is much smaller. In the true spirit of diversification, one must go beyond a narrow universe of Indian stocks to both de-risk their portfolio and also add zing to returns. 

Best of the best : The global and domestic economy, as we know it, is transforming. Emerging business areas like e-commerce, social media, cab-hailing, software products, content streaming, and high-tech are the promising areas of futuristic growth. While Indians as a customer market contribute to the profits of these US listed companies, Indians as investors do not have domestic plays on these lucrative themes. This is where US-focussed mutual funds offer a great window to potential wealth creation by having a stake in the profits generated by these America-listed firms. 

Tech that : Some of the world's biggest listed companies like Apple, Microsoft, Amazon, Alphabet (Google), Berkshire, Facebook, JP Morgan Chase come from America. US funds provide an easy and simple way for Indian investors to play American stocks. You may ask: Are American stocks giving better returns? The answer to this question is that you should look at how some of the biggest US stocks have performed! Between 2003 and 2018 i.e. in 15 years, the Apple stock gave a US dollar denominated return of 206 times. The Indian rupee denominated return is bigger at 274 times. Netflix gave 212 times and 282 times in US dollar and Indian rupee terms. Amazon gave 66 times and 88 times return in the same way. In fact, 9 of the top 20 internet leaders globally are Chinese companies like Alibaba and Tencent which are listed only in the US markets. Investing directly in China-listed companies is almost impossible for Indian investors, but the US-listing for some of the Chinese giants makes it possible for Indian mutualfund investors to go 'long' on China. 

Weak rupee equals good US returns: A stronger dollar mean investors in the US get more money when they convert their returns into rupees. This is a benefit that Indian investors derive from US-focussed mutual funds available in India. The Indian rupee has over the last 20 years depreciated at around 4.5 per cent against the US dollar. This is due to the higher inflation in India of 7.7 per cent versus much lower inflation of around 2.5 per cent in the US. 

Through investment in US-focussed funds, Indian investors are likely to gain 4.5 per cent per annum alone from this continued depreciation of the domestic currency. The US-focussed MF portfolio level appreciation can add further potential returns. 

Developed markets create higher returns : There is a popular myth that emerging markets like India deliver higher returns than developed markets like the US. However, the fact tells a different story. The Nasdaq and Dow Jones-two of the most popular benchmark stock indices in America have appreciated at a CAGR of 17 per cent and 11 per cent respectively, against India's Sensex CAGR of 9.3 per cent over the last 10 years. This challenges the belief that emerging markets like Indian markets create higher returns than developed markets. Nonetheless, observing the effect of Indian rupee depreciation, these markets have returned 21 per cent and 15 per cent for the Nasdaq and Dow vs 9.3 per cent for the Sensex. 

US: A popular destination for next-gen : USfocussed mutual funds available to Indian investors can also play a vital role. Middle-class parents nowadays, aspire to send their children for higher education abroad. Hence, it makes US as the number one destination for higher education. 

From Stanford to Massachusetts Institute of Technology (MIT), Silicon Valley to Detroit, America's bulwarks has created an atmosphere that delivers high-quality education as well as a satisfying professional career. So, US-bound Indian students' family can use their investments in US funds i.e. to create foreign assets that will pay and support the future foreign liabilities. 

Choose funds wisely : If you are looking for a good US-focussed mutual fund, choose a fund with a reasonable track record (of at least 5 years). Next, choose a fund that has its own expertise of directly investing money in US stocks. Look at the fund's returns and compare them with both its benchmark and US funds peer average for different time periods. 

US-focussed mutual funds are suitable for all investors looking for higher returns over a medium-term period. Allocate 10-15 per cent of your MF portfolio to US funds in order to enhance your overall wealth creation journey. 

Happy Investing!