In the last one year, US equity benchmark index S&P 500 has gained 28%, Japan’s Nikkei 225 gained 78%, Taiwan exchange soared 117%, and South Korea’s KOSPI index jumped 226%.
Impressive right?
A major reason for this sharp rally has been the global boom in Artificial Intelligence (AI) as several key companies from these nations offer the necessary software and/or hardware infrastructure required for AI supply chain.
In comparison the Nifty 50 and Nifty 500 lost 5% and 1.4%, respectively over the same period as India Inc. lagged the AI race.
This has enticed investors to seek exposure in international equities via mutual funds as they offer an easy access to overseas markets.
But since a majority of international mutual funds have been suspended for fresh subscription, due to RBI’s limit on overseas investment for mutual funds, investors can consider domestic equity funds that invest some portion in foreign stocks.
In this editorial, find out about mutual funds that invest in foreign stocks.
We have considered funds from diversified categories that have exposure of more than 5% in foreign stocks and have avoided sector and thematic funds.
1) Axis Large & Mid Cap Fund
Axis Large & Mid Cap Fund aims to invest primarily in large and mid-sized domestic companies while adding exposure to select global stocks for diversification.
The fund has invested 7% of its assets in foreign stocks with higher investments in Taiwan Semiconductor Manufacturing Co Ltd., Alphabet Inc A, NVIDIA Corporation, Astrazeneca PLC, and TJX ORD.
It also invested 1.4% in overseas ETF units – iShares Nasdaq 100 UCITS ETF USD and iShares Core S&P 500 UCITS ETF.
Axis Large & Mid Cap Fund – Top Foreign Stock Exposure
| Stock | Holding (%) |
| Taiwan Semiconductor Manufacturing Co Ltd. | 1.36 |
| Alphabet Inc A | 1.26 |
| NVIDIA Corporation | 0.93 |
| Astrazeneca PLC | 0.49 |
| TJX ORD | 0.47 |
Source: ACE MF
2) DSP Multi Asset Allocation Fund
DSP Multi Asset Allocation Fund invests in multiple asset classes such as equity, debt, commodity, overseas securities, and REITs & InvITs, while dynamically managing the allocation based on market conditions.
The fund has invested 10.1% of its assets in foreign stocks with prominent holdings in NVIDIA Corporation, SK Hynix Inc, Amazon.com, SONY Corp, and Microsoft Corp.
It also invested 3.3% in overseas mutual fund units such as Communication Services Select Sector SPDR, Ishares Global Industrials ETF EXI, and Ishares S&P 500 Energy.
DSP Multi Asset Allocation Fund – Top Foreign Stock Exposure
| Stock | Holding (%) |
| NVIDIA Corporation | 1.43 |
| SK Hynix Inc | 1.15 |
| Alibaba Group Holding Ltd. | 1.01 |
| Amazon.com | 0.94 |
| SONY Corp | 0.87 |
Source: ACE MF
3) DSP Value Fund
DSP Value Fund aims to invest in a mix of domestic and international (up to 35% of its assets) companies that are financially sound and are available at reasonable prices.
The fund has invested 12.2% of its assets in overseas equities such as SK Hynix Inc, Amazon.com, NVIDIA Corporation, Contemporary Amperex Technology Co. Ltd, and Microsoft Corp.
It also invested 4.8% in overseas mutual funds with higher allocation to WCM Global Equity Fund and Harding Loevner Global Equity Fund (Class A USD Shares).
DSP Value Fund – Top Foreign Stock Exposure
| Stock | Holding (%) |
| SK Hynix Inc | 1.68 |
| Amazon.com | 1.28 |
| NVIDIA Corporation | 1.20 |
| Contemporary Amperex Technology Co. Ltd | 1.17 |
| Microsoft Corp | 1.17 |
Source: ACE MF
4) Parag Parikh Flexi Cap Fund
Parag Parikh Flexi Cap Fund is a value-oriented flexi cap fund that invests across market caps but with a large cap bias, along with some exposure to overseas equities.
The fund invested 11.8% of its assets in US tech giants such as Alphabet Inc A, Amazon.com, Facebook, and Microsoft Corp.
Until a few years ago the fund used to invest around 25-35% of its assets in overseas equities but this has reduced to around 11-12% at present.
This is primarily due to the RBI and SEBI’s cap on overseas investment limits for mutual funds. The fund also received massive inflows in recent years which it invested in domestic equities, thereby diluting overseas allocation over time.
Parag Parikh Flexi Cap Fund – Top Foreign Stock Exposure
| Stock | Holding (%) |
| Alphabet Inc A | 4.90 |
| Amazon.com | 2.47 |
| 2.44 | |
| Microsoft Corp | 2.01 |
Source: ACE MF
5) SBI Focused Equity Fund
SBI Focused Equity Fund follows a multi-cap approach and invests in a concentrated portfolio of up to 30 stocks. The fund had exposure of 14.9% in foreign stocks having invested in Alphabet Inc A and EPAM Systems Inc.
While the fund’s primary focus is on domestic companies, the global allocation allows the fund manager to capitalise on high-growth opportunities overseas.
SBI Focused Equity Fund – Top Foreign Stock Exposure
| Stock | Holding (%) |
| Alphabet Inc A | 11.14 |
| EPAM Systems Inc | 3.74 |
Source: ACE MF
6) Franklin India Dividend Yield Fund
Franklin India Dividend Yield Fund invests in primarily in Indian market that have the potential to to provide growth through capital appreciation as well as regular income through dividends.
It also seeks opportunities in overseas markets, especially emerging market companies.
The fund invested about 7% of its assets in foreign stocks such as MediaTek (Taiwan), Unilever (US), Hyundai Motor (South Korea), Hon Hai Precision Industry, and Cognizant Technology Solutions Corporation.
It also invested in 1.1% in Yuanta/P-Shares Taiwan Dividend Plus ETF.
Franklin India Dividend Yield Fund – Top Foreign Stock Exposure
| Stock | Holding (%) |
| MediaTek (Taiwan) | 2.72 |
| Unilever (US) | 1.88 |
| Hyundai Motor (South Korea) | 1.11 |
| Hon Hai Precision Industry | 0.71 |
| Cognizant Technology Solutions Corporation | 0.55 |
Source: ACE MF
Conclusion
Exposure to foreign stocks allows investors to benefit from opportunities that may not be available in the domestic market.
They also offer diversification as slow growth in domestic market may be offset by faster growth in another market.
Thus, investment in foreign stocks can help mitigate country-specific risks because different economies share low correlation with one another.
Diversified equity funds that offer tactical exposure to foreign stocks can help investors to benefit from global trends and rally in global markets.
That said, when selecting the funds for your portfolio, it is important to look at the overall track record of the fund based on performance history, risk-adjusted returns, and the quality of the fund management, etc.
Happy Investing.
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