Foreign-return, or should we say Return-to-Foreign?
There was a time when we waited with bated breath for our ‘foreign return’ cousins and aunts to visit us as they usually came bearing presents that were at that time not available in India. Running shoes from Nike’s newest collection, the latest music CDs, or maybe something as simple as a motorized sharpener became our prized possessions simply because they brought an element of ‘exclusivity’.
Today, due to seamless interactions and connectivity powered by technology, we don’t only have access to foreign products but have also become increasingly aware of opportunities and developments across the world. While our lifestyle is becoming globalised, our portfolios continue to be mostly localised. However, just as there is merit in having access to global goods and services, there are benefits to be accrued from international investing.
Some of the key benefits include:
Potential to enhance risk-adjusted returns through geographic diversification: There are myriad factors that impact equity market movements and can influence the return potential of your investment portfolio. Often, due to the prevailing economic and regulatory landscape, the factors that impact global equities might be different from those that impact domestic equities. For example, while geopolitical tensions on India’s borders can have a strong impact on Indian equities, it is unlikely that US equities would respond to any developments on that front. As a result, the inclusion of global equities in your portfolio can help you diversify your investment portfolio and mitigate the impact of negative domestic developments. Correspondingly, global equities can provide innovative investment opportunities that can potentially enhance long-term investment returns. Both these factors combined may improve the risk-adjusted returns of your portfolio.
Exposure to innovative themes: The Indian tiger continues to roar and there are plenty of good investment avenues and wealth creation opportunities currently available in the country. At the same time, the world is currently witnessing unprecedented innovation with companies creating products and solutions that are enhancing ecosystems and engendering immense value. The boundaries of innovation are getting torn down with cashier-less stores, driverless cars, and gene technology helping humans develop a super-effective cancer drug. Great things are happening around the globe and the international allure is no longer limited just to the FAANG. However, there are only a few listed Indian companies that are truly harnessing the power of innovation. Thus, if you really want to invest in innovative companies that are orchestrating change, then international investing can be an ideal route.
Hedge against rupee depreciation: At the outset, it is important to state that a hedge against rupee depreciation should ideally not be one of the main reasons for investing in international equities. Nonetheless, the hedging benefit cannot be ignored either. The INR has historically traded weaker than leading world currencies like the US Dollar or the Euro. For people of foreign currency denominated expenses or liabilities, a weaker INR can have a negative impact on total outflows. However, assets or investments in foreign funds can act as a hedge against rupee depreciation and limit the impact of a fall in the INR. Further, a depreciating INR can also enhance the rupee-denominated returns of your foreign investments.
The easiest route to investing in international equities
Traditionally, most investors have stayed away from international investing as it requires a certain degree of knowledge about international markets as well as a keen eye on global macroeconomic developments. However, for Indian investors, it has now become very simple to invest in international equities. All you need to do is invest in an international mutual fund offered by a trusted Indian Asset Management Company [hint hint: DSP :)].
These funds can provide international exposure either by investing directly in international stocks, via ETFs or by investing in foreign mutual funds through the Fund of Funds (FoFs) route. Our new DSP Global Innovation Fund Of Fund invests in global funds that are diversified across innovative investment themes. Packing in a punch, the fund offers the diversification benefits of international investing along with the added advantage of investing in innovative companies that can potentially amplify the long-term returns of your portfolio.
You can now easily broaden your horizons not just beyond your domestic shores but also beyond the much talked about FAANG.
To know more about DSP Global Innovation Fund (and for its product labeling & disclaimers), click below.
Note: SEBI has set an industry-level limit of $7 BN for Mutual Funds (MFs) to invest in overseas securities & MFs & a limit of $1 billion for investment in overseas Exchange Traded Funds (ETFs). While the overseas ETF limit is still some distance away, the $7 BN limit for investments in overseas securities/MFs could get exhausted soon. Hence, on 23rd Jan 2022, SEBI advised us that DSP Global Innovation Fund of Fund (DSPGIF) should invest only in overseas ETFs until the overall limit of $7BN is raised. Therefore, DSPGIF will begin by investing in two passive funds, iShares PHLX Semiconductor ETF & iShares NASDAQ 100 UCITS ETF as advised by SEBI. Once the overseas investment limit for the Indian MF industry ($7BN) is increased, this fund will also start investing in unique active strategies like BlueBox Global Technology Fund, Nikko AM ARK Disruptive Innovation Fund, Morgan Stanley US Insight Fund & BGF World Technology Fund. Please note this change, before you invest.