Should you invest in International Funds?
INTRODUCTION
International Investing has been gaining a lot of traction of late because investors get exposure to companies that have a global footprint at a low cost and no one can predict whether the US Stock Market or the Indian Stock Market is going to do well over the next 10 years
So, why not diversify your Investments over the globe?
Tesla, Amazon, Google & Apple are top-notch companies and the returns they have delivered over the past years are mind-boggling
For Instance, Tesla has had one of the fantastic bull runs of the year, Tesla's closing price on 18th March 2020 was $72.24, and the closing price on 26th Jan 2021 was $883.09 (It's record high)
A stellar absolute return of 1122.43%, however, you may argue that in this example I have assumed that one buys and sells at the lowest and highest point respectively.
So why not take a look at its return from June 2010 to June 2020, it stands at a CAGR of 45.73%, It essentially means that you could have doubled your money every 1.5 years
Similarly, over the past decade CAGR from the top companies are as follows
Amazon- 33.26%
Apple- 26.82%
Netflix- 34.58%
Alphabet (Google)- 19.6%
One can invest in International stocks directly or via an International Mutual Fund containing a basket of stocks based on the objective of the mutual fund
So let's get started without any further delay, In today's blog we will talk about the various benefits of Investing in International Funds & which fund to select
WHY INVEST IN INTERNATIONAL MUTUAL FUNDS?
It is imperative to understand the benefits of International Investing before we understand which international fund to select.
1. A HEDGE AGAINST THE DOLLAR:
On 1st January 2013, the dollar was worth Rs 53, however, as of today the dollar is worth around Rs 74
International Funds act as a hedge against the dollar appreciation because the investor is benefitted
For Instance, if you invested in an International Fund which delivered a good return over time when the dollar rate was 53 and redeemed the units when the rate was 74 this means that the investor has benefitted by
1. Capital appreciation (due to increase in stock prices)
AND
2. The difference in the currency rate
The best part is that the investor does not have to invest in dollars, the investor has to invest in Indian rupees and the fund will do the hassle of converting it to dollars before investing abroad.
2. NO ONE KNOWS WHICH MARKET WILL OUTPERFORM:
The S&P 500,Nifty 50 & Bovespa (Brazil's Index) delivered a CAGR of -3.58%,12.19% & 14.84% respectively from 2000-2010. Bovespa outperformed the Nifty 50 and S&P 500
However, from 2010 to 2020 the S&P 500,Nifty 50 & Bovespa delivered a CAGR of 11.63%,9.38% & 5.69% respectively. S&P 500 outperformed the Nifty 50 and Bovespa
The point is that NO ONE can predict the market accurately all the time so the best thing would be to diversify some assets over different markets and geographies.
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3. INVEST IN THE WORLDS BEST COMPANIES:
Companies such as Facebook, Google, Microsoft, Amazon & Apple are the market leaders in their own space and have a global footprint which helps them to maximize their profits
These companies are often the first to react to take advantage of new development in the space because they have the resources
Wouldn’t it be great to own a part in such companies? The only problem is that they are not listed on the Indian Stock Exchange but don’t worry International Mutual Funds come to the rescue
You can simply buy units of Motilal Oswal NASDAQ 100 ETF and become a part-owner of all the companies in the Index
4. REDUCES DEPENDENCE ON INDIAN MARKETS:
International Mutual Funds provide the advantage of diversifying across geographies thus reducing the dependence on a particular country.
For Instance, If there is a huge financial scam uncovered in India or riots break out at a national level or any national calamity like an earthquake or flood affects important states in India then the markets will tumble
But if you have also allocated a portion of your portfolio in the US or China then that portfolio is secured.
WHICH FUND SHOULD YOU SELECT?
Certain domestic mutual funds like Axis Growth Opportunities Fund or Parag Parikh Flexi Cap Fund have around 3-5% and25-30% of the portfolio in international stocks.
However, these funds would not provide the investor with enough international exposure thus would beat the objective of international investing
After understanding the benefits of investing in International Mutual Funds the next important question that will come to your mind is “Which Fund should you Invest in?”
The answer to this question will have to be given by you only because it depends on various factors.
However, Avoid Investing in Funds with a narrow mandate or restricted to a particular theme
For Instance, I believe that “Emerging Markets” will grow at a very healthy rate over the next 10 years so rather than investing in a particular emerging market like Brazil I would prefer to have some allocation to all the emerging markets in the world
Rather than opting for “HSBC Brazil Fund” I will opt for “Kotak Global Emerging Market Funds”
I hope you get the point; this will also reduce concentration risk.
Below is the list of funds that have performed well in the past
However, don’t just look at the returns while making the investment decision rather analyze the investment mandate and other aspects before investing.
I personally prefer splitting my international allocation between a fund that invest in the US and one investing in Emerging Markets
Source- ET Wealth
CONCLUSION
Investing Internationally has never been as easy as it is today, you can either choose to invest directly or via mutual funds (I would prefer the latter)
If you have any doubts regarding the topic, please do let me know in the comment section and I will get back to you as soon as possible!
Also do let me know If you are investing in international funds.
See you again in another informative blog!
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