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As Indian rupee,economy falter,investors look towards US equities

Between June and August,2013,US-focussed schemes saw their AUM jump by over 70%.

Written by Sandeep Singh |
October 7, 2013 1:14:11 am

In July 2012,when ICICI Prudential AMC launched its US Bluechip Equity,Nimesh Shah,CEO of the fund house,enthusiastically promoted his scheme across the country,trying to hardsell the advantages of picking up exposure in some of the world’s biggest blue-chip companies. After 30 roadshows during the new fund offer (NFO) period,the fund managed to collect only Rs 57 crore.

“We failed then,” Shah recalls with dismay. What it failed to mobilise at the time of launch,the fund has more than compensated for over the last couple of months,with its assets under management (AUM) surging from Rs 105 crore in June 2013 to Rs 155 crore by August 31,2013 as the funds have generated superior returns and investors seeing value in diversification with sharp depreciation of rupee.

Others,too,have gained. Franklin Templeton,which launched its FT India Feeder Franklin US Opportunities Fund in January 2012,collected Rs 104 crore during the NFO period,while its AUM surged from Rs 220 crore in June to Rs 377 crore by August end. DSP Blackrock US Flexible fund that was launched in July 2012,had seen AUM surging to Rs 80 crore by August-end,up from Rs 33 crore in June 2013. In aggregate,the three US-focussed schemes saw their AUM jump by over 70 per cent from Rs 358 crore in June 2013 to Rs 610 crore in August 2013.

While the schemes focussing on exposure into US equities recorded a net addition to their AUM between July and August,the overall equity AUM during the month of July witnessed a net outflow of Rs 1,652 crore,primarily on account of redemption pressure. The data for the month of August though was slightly encouraging as there was a net inflow of Rs 467 crore into the equity schemes during the month.

“It’s a new phenomenon and inflows have been good with informed investors moving into this category. While the overall numbers are still small,at a time when other equity funds are witnessing redemption there have been inflows in this category,” said Pankaj Sharma,EVP and head of business development at DSP Blackrock Mutual Fund.

Superior performance

The rise in the AUM of the schemes over the last couple of months clearly reflects that investors are moving towards these schemes and it is not without a reason. Three of these schemes,which were launched in 2012,have generated over 37 per cent return in the last one year after managing to mobilize an aggregate of less than Rs 300 crore at the time of their launch. While FT India feeder fund generated a return of 48.2 per cent,ICICI Prudential’s US bluechip has generated a return of 44 per cent.

While the schemes have benefited by a depreciating rupee,they have outperformed the market even without the rupee depreciation been taken into account. The returns while are significantly higher than the Sensex return of 3.7 per cent in the same period,it is also superior to the average return of 18 per cent generated by international funds in India which goes on to suggest that US markets have done better than others.

In Indian,there were few asset management companies that saw high growth coming in US and launched their schemes and they have benefited significantly from it.

US equity-oriented schemes

Sensing the pick up over the last few months,ICICI Prudential has now launched another fund — Global Stable Fund — that closed for subscription on September 10 while JP Morgan Mutual Fund launched its US Value Fund in India in July 2013 and collected Rs 115 crore in the NFO period. Top officials with the fund house are confident of taking this number significantly higher over the next 5-6 months.

“There is good traction in the market and all categories of distributors are offering this to their clients,” said Supreet Bhan,ED and head of retail sales at JP Morgan AMC India.

Till a couple of years back,investment diversification to cover the developed economies as an investment strategy was greeted with apprehension. Why should I go abroad when the world is coming to India and our GDP is growing between 8-9 per cent?,was the common refrain. Fund houses say that investors are now beginning to look at these schemes with interest and queries on them have gone up.

“As part of asset allocation you should have part of your wealth outside home country. Many have their expenditures linked to dollar so it provides a hedge against adverse currency movement,’ said Nimesh Shah,who added that such products are not for first time investors but for those who already have exposure to domestic equities.

why Should you invest in them?

The rupee depreciation is not something that will continue forever and it will find its fair level and trade at the same. We have already seen that the movement can’t be just one way and after having hit a level of 69 against the dollar in August end but has now regained some of its lost ground and is trading at levels of 62.5. Therefore if you are looking to enter into these schemes to benefit from depreciating rupee,then it would not be wise.

“Do not take call on currency but go for the underlying portfolio of the scheme,merits of growth in the US economy and on the strong corporate growth in the US,” said Bhan.

Experts say to take a call on the US economy and invest to benefit from gains of some of the best and most profitable companies of the world. Investment should be from the point of view of diversification and experts feel that anywhere between 5-10 per cent of your investment can be parked into such schemes.

Also individuals who plan to send their kids abroad for studies or have any major future planned expense abroad may look to take exposure to these schemes.

“In the next five years I plan to send my daughter who is now 13 for her higher studies to the US and for the same I have started routing my savings for her studies into one of the schemes investing in US equities. Not only it protects me from any adverse movement in rupee but also helps me to take advantage from growth of some of the best companies in the world,” said a top official with a financial services firm who did not wish to be named.

Do have a look at the asset class and if you have sufficient exposure to Indian equities,its time for you to look outside India. Begin with exposure of up to 5 per cent of your investments into these schemes and increase them with time. First time equity investors should avoid this asset class and may first look to invest in domestic diversified equity schemes.

Be careful!

While the schemes may be performing and currency depreciation is benefiting you now the are some who put in a word of caution for such schemes. Surya Bhatia a Delhi based financial planner calls for investors to look at dollar returns and also not to go overboard on such schemes as the risks are two fold- currency risk and equity risk.

“Investors who plan to send their kids abroad for foreign education too need to ask themselves a question,whether they would have saved for their kids education in India into equities and if their answer is yes,then they can go for such schemes as it at least hedges them on the currency front,” said Bhatia.

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