8,083.80-170.0
Stock Analysis, IPO, Mutual Funds, Bonds & More

Never choose international funds based solely on returns

The international fund category is offering around 15% returns in the last one year. Suddenly, many mutual fund investors are thinking of diversifying and include at least one international fund in their mutual fund portfolio.

, ET Online|
Last Updated: Feb 20, 2020, 09.35 AM IST
0Comments
iStock
diversi3
The international fund category is offering around 15% returns in the last one year. Suddenly, many mutual fund investors are thinking of diversifying and include at least one international fund in their mutual fund portfolio. However, mutual fund managers and advisors are asking investors to proceed cautiously.

The international fund category has offered 14.40% returns in the last one year, 8.68% in three years and 6.34% in five years. The top 6 schemes in this category have given above 25% returns in the last one year. A close look at the category shows that the top ten schemes follow different investment strategy. They invest in diverse markets, commodities, and have disparate investment mandates.

Here are the top 10 schemes on the 1-year return chart and where they invest:

Scheme name Investment mandate
Motilal Oswal NASDAQ 100 ETF Index fund tracking NASDAQ 100 Index. Invest in the bluechip companies in the US market
Edelweiss Greater China Equity Off-shore Fund Investing in JP Morgan Funds - Greater China Equity Fund, an equity fund which invests primarily in the companies from the greater China region.
Motilal Oswal Nasdaq 100 FOF Fund of funds investing in units of Motilal Oswal Nasdaq 100 ETF.
Kotak World Gold Fund Invests in companies engaged in the extracting, processing and marketing of gold worldwide. Predominantly invests in units of Falcon Gold Equity Fund.
Franklin Feeder Franklin US Opportunities Invests predominantly in units of Franklin U.S. Opportunities Fund
PGIM India Global Equity Opportunities Invest in companies around the world believed to be new market leaders with sustainable competitive advantages; through the underlying fund.
Nippon India US Equity Opportunities Invests in companies listed on recognized stock exchanges in the US and the remaining in debt and money market securities in India.
DSP World Gold Fund Predominantly invests in the units of blackroack's world gold fund and similar schemes.
ICICI Pru US Bluechip Equity Fund Invests in the equity of companies listed on recognized stock exchanges in the USA.
Edelweiss US Value Equity Offshore Fund Invests predominantly in JPMorgan's US Value Fund.

“International fund category is a highly diverse category. Investors shouldn’t make the mistake of chasing returns in such schemes,” says Raunak Onkar, international fund manager, PPFAS. “It is a high-risk category. Apart from having a high risk-appetite, investors should also be aware to sail through the volatility in such schemes,” adds Raunak Onkar.

Onkar manages the overseas investment in Parag Parikh Long Term Equity Fund that manages assets worth Rs 2,784 crore as on Jan 31st, 2020. The scheme has offered 17.12% returns in the last one year.

Puneet Oberoi, Founder, Excellent Investment Advisors, says that even if you are an aggressive investor, you shouldn’t pick any scheme in the international fund category randomly to diversify your investments. Raunak Onkar also agrees with him. “We can say we need another re-categorisation exercise for this category. The category has funds across geographies and themes. But all of this is in one basket. There are world gold funds, world agriculture funds, China-centric funds, EM centric funds etc. So, choosing schemes on the basis of returns can hurt investors very badly,” Raunak Onkar says.

Mutual fund advisors say investors who are interested to geographically diversify their investments by investing in overseas schemes should stick to safer funds if they don’t know much about the world markets.

“In the international fund category, there are schemes that track NASDAQ and the broader US and European markets. These schemes are easy to track and not very volatile,” says Puneet Oberoi. He warns against focusing solely on returns and getting into risky overseas funds. “Many investors get into the toppers on the charts which can be a China fund or a commodities fund. This can be dangerous.”

Raunak Onkar says if an investor is going to invest on the basis of returns alone, s/he would choose a China fund. However, an intelligent investor will not risk investing in such a scheme when coronavirus threat is on. He believes that smaller markets like Germany, Brazil etc are difficult to track in comparison to the USA. That’s why many mutual fund advisors like Puneet Oberoi suggest only the USA-centric funds to their clients.

Mutual fund advisors also believe that regular investors should avoid funds that focus on smaller markets also due to the corporate governance issues. “Many a times, markets like India, China, Brazil outperform USA’s developed market. However, investors need to understand that you are diversifying to avoid the issues in the Indian markets. Emerging markets have similar governance issues. In this case, investing in a high-yielding Vietnam fund wouldn’t help you,” says Raunak Onkar. He adds that Europe and the USA are the two places where companies have high corporate governance standards.

Also Read

Diversification through international funds

Do international funds really offer diversification?

Want to diversify sans frontières? look at international funds on offer

Gold funds or international funds: which is a better portfolio diversifier?

Comments
Add Your Comments
Commenting feature is disabled in your country/region.

Other useful Links


Copyright © 2020 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service