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For investors looking at opportunities in the US markets, taking the fund route may be a good choice if you wish to avoid dealing with foreign currencies. Currently, MOSt Shares Nasdaq ETF is one such choice.
Franklin Templeton India, through its new fund — FT India Feeder Franklin US Opportunities (FT India Feeder) — offers an Indian route to own US stocks through its actively-managed parent fund.
THE FUND
FT India Feeder will be a passively-managed fund that will invest your money in Franklin US Opportunities, a fund that invests in US growth stocks. The fund differs substantially from the exchange-traded fund offered by Motilal Oswal Mutual Fund on two counts.
One, MOSt Shares Nasdaq 100 ETF is a passive fund that will mirror the Nasdaq-100. This is an index tilted in favour of the technology sector.
Franklin US Opportunities, in contrast, has flexibility to invest across stocks in the US market, with the Russell 3000 index as a benchmark. The fund, therefore, takes exposure to technology plays such as Apple Inc or Qualcomm, industrial players such as Precision Cast Parts Corp, unique financial plays such as Blackrock Inc or chemical product maker Celanese Corp.
The parent fund, Franklin US Opportunities, was launched in 2000, and has 60-80 stocks in its portfolio.
Software, technology hardware, energy and capital goods were some of the top sectors in the portfolio as of December 2011.
WHAT THE US CAN OFFER
While Indian markets may, in the long run, continue to deliver superior returns, there are benefits of diversifying into markets such as the US.
The US markets offer diversification into businesses and industries that aren't too common in the Indian listed space. It also offers multinational stocks at less-demanding valuations, compared with the Indian market.
The notion that US markets deliver poor returns has also been disproved in the last three years, going by returns from the broad US market.
With companies in indices, such as the S&P 500, deriving close to 50 per cent of their revenues from outside of the US, the performance of these stocks isn't entirely dependent on the US economy.
The downside of investing abroad through the fund route is that your investments will be subject to currency fluctuation. An appreciation in the rupee against the dollar, for instance, can reduce returns in rupee terms for you. FT Feeder's NAV will be adjusted for such movements.
RETURNS AND VALUATIONS
The Russell 3000 index, a broad market index representing the 3,000 largest companies in the US, and 98 per cent of listed equities there, returned 21.4 per cent compounded annually (in rupee terms) in the last three years. That's superior to the 17 per cent annual return of the BSE 500, and similar to the Indian equity mutual fund category average of 21 per cent.
The FT US Opportunities fund delivered a slightly higher return of 22.5 per cent during this period. During five years, the fund's return of 7.6 per cent annually, is superior to the category average of equity funds in India. You should however, not expect this fund to beat well-managed Indian funds, especially when Indian markets and the economy pick up.
The Russell 3000's price earnings, at 15 times trailing earnings, isn't cheap. The fund, too, may be holding a pricey portfolio. However, given that it is targeting growth stocks, such premium may be inevitable.
Mr Roshi Jain will be the fund manager for the FT Feeder fund in India. The new fund offer closes on January 31.
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