The top two performers were from Mirae Asset Mutual Fund which gave more than 20% return in 2024 so far. Mirae Asset NYSE FANG+ETF FoF and Mirae Asset S&P 500 Top 50 ETF FoF offered 26.44% and 20.49% returns respectively in 2024 so far. During the same period, Aditya Birla SL Global Excellence Equity FoF delivered 12.21% return.
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SBI International Access-US Equity FoF and PGIM India Global Equity Opportunities Fund delivered 11.94% and 11.69% returns respectively in the said time period.
ICICI Prudential US Bluechip Equity Fund delivered 2.80% return in 2024 so far. Edelweiss ASEAN Equity Off-Shore Fund and Aditya Birla SL International Equity Fund delivered 0.91% and 0.62% returns respectively in the similar time frame.
HSBC Brazil Fund and Mirae Asset Global Electric & Autonomous Vehicles ETFs FoF lost the most of around 21.33% and 17.29% in 2024 so far. Mahindra Manulife Asia Pacific REITs FOF lost 8.89% in the same time frame.
Two schemes from DSP Mutual Fund – DSP World Energy Fund and DSP World Mining Fund – lost 8.18% and 6.90% respectively in 2024 so far. Nippon India Japan Equity Fund and Nippon India Taiwan Equity Fund gave negative returns of 4.45% and 4.29% respectively in the above mentioned time frame.
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Looking at the performance, should an investor make allocation in these funds at the current juncture? If not international funds, which category should they focus on?
“There are different types of International funds: global, global sector, regional, and country funds. Whichever category an investor chooses based on the requirements, an 8% to 10% diversification into International funds is recommended for most investors to diversify their portfolio. Also investing through Indian mutual funds is easier from a taxation, compliance and reporting perspective versus investing directly in the stocks in those countries,” recommends Rajesh Minocha, a Certified Financial Planner (CFP), Founder of Financial Radiance.
Another expert recommends investors to increase cash holdings as it provides flexibility to capitalize on future opportunities.
“Although there are fears of a recession, we don’t anticipate a recession happening soon. However, the valuation of international markets, particularly in the US, remains high. At this point, the Chinese market presents a more attractive entry point due to its current valuation and recent liquidity measures by the Chinese government. Given the potential volatility in international markets, which could also impact Indian markets, investors should consider a more defensive strategy. Increasing cash holdings can be a prudent approach at this juncture, providing flexibility to capitalize on future opportunities,” recommends Abhishek Jain, Head of Research, Arihant Capital.
The international funds have been the underperformers across different horizons. In the last six months, these funds gave an average return of 3.15%. In the same time period, Nippon India Taiwan Equity Fund and HSBC Brazil Fund lost around 13.29% and 13.13% respectively.
In the last three months, these schemes gave a negative average return of 1.29% with highest negative return being offered by Mirae Asset Global Electric & Autonomous Vehicles ETFs FoF of around 13.30%. HSBC Brazil Fund and Axis Greater China Equity FoF lost 12.77% and 11.93% respectively. Nippon India Taiwan Equity Fund and Edelweiss Greater China Equity Off-Shore Fund offered negative returns of around 11.65% and 10.22% respectively in the last three months.
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The schemes that offered negative returns were majorly from Brazil, China, Taiwan geography. After seeing losers from these economies/geographies, which economies should investors focus on?
“Investors should particularly focus on the Chinese economy. The recent liquidity infusion by the Chinese government and strategic policy measures make Chinese stocks a promising area. However, it’s important to manage expectations regarding returns, as they might be more moderate compared to past performance. Keeping an eye on China’s economic policies and market trends will be crucial for making informed investment decisions,” said Jain.
One expert recommends investors to keep a watch on the Chinese economy, the other expert recommends to primarily focus on the Indian economy as there are enough indications to show that India will soon be the third-largest economy in the World.
“Investors should primarily focus on India. India has a strong ambitious plan to be a Viksit Bharat by 2047. There are enough indications to show that India will soon be the third-largest economy in the World. Therefore, investors should continue to focus on India as their main dominant investing strategy. Of course, there may be deviations along the way and in the globalised world, any adverse impact elsewhere would also impact India and will not remain immune to it. Investors should remain focused on their goals and continue to invest based on their risk appetite and time horizon,” mentioned Minocha.
The market regulator Sebi told mutual funds to stop fresh subscriptions in overseas ETFs with effect from April 1, 2024, as the $1 billion investment limit was about to be breached. After this many mutual funds stopped accepting fresh investments in their overseas ETFs.
The Indian benchmarks – Sensex and Nifty – were down by around 3% on Monday after the rise in concerns over the unwinding of the Yen carry trade, combined with fears of recession in the US.
With many mutual fund houses not accepting fresh investments in their overseas ETFs and these funds continuously underperforming against all equity mutual funds across different horizons, how will these funds perform going forward?
“In the near term, there is going to be an impact while investing in International funds. There are multiple challenges currently like a sell-off that recently happened in the US tech stocks. The fear of recession in the U.S. is again being looked at, which has impacted the markets internationally. Then we had the Bank of Japan raise its benchmark rate to about 0.25% which is the highest interest rate since October 2008,” said Minocha.
He further added, “When Indian investors invest in International funds they also benefit if the rupee depreciates against the other currency over a period. Investors should continue to invest in International markets, primarily the U.S. but more as satellite funds and not as their core strategy.”
On the other hand, Jain mentions that there is a high probability of interest rate cuts which will lead to increased bond market activity and bonds are expected to perform well under these conditions.
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“The past one and a half years have been favourable for investors, but we anticipate a return to normalcy in the near future. Despite the recent underperformance, there is a high probability of interest rate cuts, which could lead to increased bond market activity. Bonds are relatively expected to perform well under these conditions. Investors should consider diversifying their portfolios with bonds to benefit from potential rate cuts and the stability they offer,” he commented.
International funds cater to different broad international markets, commodities, foreign indices, among others. That means you should pay extra attention to your investments in international funds. Pay extra attention to which geography or indices you are investing in. Also, you should keep in mind that geographical diversification always doesn’t translate into great returns. Developed markets, by definition, offer modest returns. An emerging market like India might offer better returns over a long period. That is why overseas funds are not recommended to small investors. They are mostly recommended to investors with very large portfolios looking to diversify across geographies.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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