Wealth managers are advising clients to park thein money in US-oriented offshore investment products for exposure to global technology and healthcare businesses that are likely to benefit from the disruptions and challenges caused by the Covid-19 pandemic.
“Following the outbreak of Covid-19, the rate of digital transition has increased significantly in the past two months. Investors are also now more receptive to international products, as the weak returns have reduced the home bias,” said Ankur Maheshwari, chief executive officer of Equirus Wealth Management.
Experts say the large stimulus package expected in US will help revive that country’s economy.
Over a one-year period, the international category of funds has given returns of 6.8 per cent, whereas domestic-oriented large-cap funds have seen negative returns of 19 per cent, showed data from Value Research.
Some wealth managers suggest investors opt for the liberalised remittance scheme of (LRS) and directly invest in global exchange traded funds (ETFs), instead of feeder funds offered by mutual funds (MFs).
“For investors with scale, we suggest them to consider LRS route as there can 1-2 per cent slippages in feeder funds. Apart from the technology-driven stocks, we are also advising investors to consider global healthcare ETFs, as the healthcare theme is gaining traction in the wake of Covid-19 pandemic,” said Rajesh Cheruvu, chief investment officer at Validus Wealth.
“We continue to suggest 10-20 per cent allocation to offshore products, depending upon investors’ risk-profile. Current crisis and rupee weakness have reinforced our thinking,” he added.
LRS provided by the Reserve Bank of India allows resident individuals to remit a certain amount of money during a financial year to another country for investment and expenditure.
Within the technology stocks, money managers say that the pack of popular US technology stocks — FAANG (Facebook, Amazon, Apple, Netflix and Alphabet-Google — stand to benefit from the disruptions caused by Covid-19. “Businesses are likely to depend more upon technology for meetings, interactions and transactions. These will benefit foreign businesses such as Zoom, Microsoft, that can facilitate these changes,” said a fund manager.
Industry participants say investors should look at such funds for diversification, rather than vehicles for chasing higher returns.
“Investors can take 10-20 per cent allocation to such funds to lower the risks to their overall portfolio,” said Radhika Gupta, chief executive officer of Edelweiss Mutual Fund (MF).
In February, Edelweiss MF launched US Technology Fund of Fund (FoF), giving exposure to US businesses that are technology-driven.
More recently, Motilal Oswal MF launched S&P 500 index fund in April.
The fund of fund overseas category has seen sharp pick-up in flows in recent months, even though the size of flows is not yet comparable to other equity categories.
In the last six-months, the average inflows to the category has been to the tune of Rs 112 crore, which is 2.5-times preceding six-months’ average.
“From perspective of asset allocation, it is useful for investors to take such allocations. However, expectations need to be tempered as past behaviour patterns suggest, investors tend to cut their exposures to such funds when they start to underperform. International funds also offer investors hedge to currency risks,” said Kaustubh Belapurkar, director (fund research) at Morningstar.