Fund tracker: Indian funds strike it rich with global equity investments

MUMBAI: International equity funds and feeder funds have delivered stellar returns of up to nearly 53% over the past year, outperforming the markets with the help of strong US equity markets and depreciation of rupee against the dollar.

Indian mutual fund companies reaped rich dividends by investing in the US equity markets through international equity funds and feeder funds. This happened as the US equity market benchmark index, S&P 500, gained nearly 28% over the year while the domestic benchmark index, BSE Sensex, delivered returns of just 8% during the period.

The depreciation of rupee against the dollar by about 14% also boosted their performance since investments in international equity funds and feeder funds are done through foreign currencies.

“US-focused equity funds have done well in recent months as US markets have outperformed emerging markets, including India, on the back of positive news flow. The recent concerns over the direction of global liquidity have added to divergent performance as the US dollar has strengthened against most emerging market currencies,” said Jaya Prakash K, director of global research and analytics at Franklin Templeton Investments. “Many US companies have successfully diversified across the globe and are uniquely positioned to benefit from rising demand in the US as well as emerging markets,” Prakash added.
Among the top three such funds, FT India Feeder Franklin India Opportunities Fund has given a return of about 52.9% over the past year while ICICI Prudential US Bluechip Equity Fund has given a return of 44.9% and DSP Blackrock US Flexible Equity Fund has shown a growth of 44.7% in its net asset value.

Global fund managers continue to remain bullish over the US economy and performance of US equity markets. Morgan Stanley said in a recent report that the US economy was expected to grow 2.6% in 2014, against 1.6% expected growth in 2013.

“The strong performance of US markets and depreciation of rupee has helped US Bluechip Equity fund to post such stellar returns in 2013. Our investments in US companies are based on strong research, supported by Morningstar. We have invested in fundamentally strong companies, where there is clear earnings visibility,” said Sankaran Naren, chief investment officer of ICICI Prudential AMC.

Experts expect US Federal Reserve to start tapering in March 2014 as some macroeconomic indicators have started showing signs of recovery. Global markets may, therefore, witness some volatility, but this will only strengthen the underlying health of the US economy.

According to fund managers, most global equity funds entail currency risks as the domestic asset management companies invest their funds in dollar terms. For instance, if the rupee depreciates against the dollar, returns from global funds will increase and if the rupee appreciates the returns will go down.

Mutual fund managers say many high net-worth individuals (HNIs) and ultra HNIs generally invest in these funds as they look to diversify their fund allocation beyond India, especially at a time when local markets are not doing too well.