In the past year, the two major US indices — Nasdaq and Dow Jones — rose 24 per cent and 16 per cent, respectively. In comparison, the Sensex gained 11 per cent. Obviously, savvy investors are parking their money in international feeder funds.
According to the Association of Mutual Funds in India’s half yearly data, more than 94 per cent of total folios in international feeder funds were owned by retail investors as on March 31. This number has increased from 93 per cent in the previous year.
Their total contribution to the AUM of these funds has gone up as well. In the fiscal year ended March 2011, it was Rs 851.9 crore, which increased to Rs 922.5 crore in the previous financial year.
“The increased volatility in Indian markets since 2008 and the relative outperformance of overseas funds led to increased interest amongst Indian investors,” says Harshendu Bindal, president, Franklin Templeton Investments – India.
According to data by Value Research, the international fund category has given investors average returns of 16.8 per cent in the past year. On the other hand, the large-cap category has given returns of 11.6 per cent and the large and midcap category 10.39 per cent.
Puneet Chaddha, chief executive officer, HSBC AMC, says investors are now looking outside traditional investment themes for new opportunities that could add value to their portfolios and also deliver returns in line with their expectations.
Take the example of Motilal Oswal AMC’s NASDAQ ETF, it has gone up more than 58 per cent over the last year. Whereas, Franklin Templeton’s US Opportunities Fund has given more than eight per cent returns in the past six months. The benchmark indices here have gone up just a little over one per cent.
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Other markets like the UK’s FTSE has risen more than 11 per cent in the last year and Singapore by 12 per cent.
International feeder funds offer investors access either to new themes (like agriculture, energy, etc.) or to new geographies (like US, China, etc.), says Pankaj Sharma, EVP, DSP BlackRock Investment Managers.
“Investors need to be convinced about the underlying portfolio theme and the risk-return profile before deciding to invest in such funds. Investors, therefore, prefer to invest in funds which offer broad and familiar investment themes like gold, US equities, etc., compared to those with niche themes.”
| ALTERNATIVE AVENUES | |||||
| Fund Name/ Category | 6-month return (%) | 1-year return (%) | Fund Name/ Category | 6-month return (% | 1-year return (%) |
| Sensex | 1.34 | 11.55 | International funds | 4.13 | 16.86 |
| Nifty | 1.31 | 12.69 | DWS Global Agribusiness Offshore | 13.64 | 27.11 |
| Large cap | 1.93 | 11.61 | FT India Feeder Franklin US Opportunities | 8.41 | NA |
| Large cap & Midcap | 2.89 | 10.39 | Goldman Sachs Hang Seng BeES | 7.92 | 25.95 |
| Dow Jones | 1.10 | 16.31 | HSBC Emerging Markets | -3.24 | 15.53 |
| Nasdaq | 3.61 | 23.93 | Motilal Oswal MOSt Shares Nasdaq-100 ETF | 20.77 | 58.31 |
| FTSE | -2.45 | 12.49 | ING OptiMix Global Commodities | -8.07 | 1.19 |
| Hang Seng | -6.63 | 1.17 | DSPBR World Agriculture | 8.05 | NA |
| Souce: Value Research and BS Research Bureau | |||||
Sharma also adds that international feeder funds, by virtue of their low correlation to Indian markets, fill this gap in the portfolios of Indian investors.
Chaddha suggests that such funds are suitable for investors with larger portfolios. “Those just starting off their investments or with small portfolios should look at these funds once it is of a certain size,” is Chaddha’s advise.
One should be wary about currency fluctuations when investing in these funds. Look at these funds as a means of portfolio diversification. One should invest in stories that have done well despite the market downturn, such as global commodities and gold.
Emerging markets is another theme which could be rewarding in the medium to long term, say financial advisors. In fact, even during turbulent times, these funds have given good returns.
One should, however, keep in mind that these funds may not always outperform the regular equity diversified funds. Global funds behave differently: One has to keep their act together if and when markets fall to the red. A 5-10 per cent exposure to such funds in your portfolio should be ideal enough for diversification.