2020 taught all of us effective lessons and many investors who witnessed the huge volatility in the last year are now focusing on the diversification of their portfolio in the possibility of better risk-adjusted returns. Equity investors who have exposure solely of Indian equities in their portfolio are considering international equity funds to diversify the investments and, therefore, benefit from capital appreciation through domestic and international equity markets.

Nearly all the leading global indices have been able to achieve a remarkable recovery from its lows and the US equity markets have made the fastest recovery from its lows in the previous year. With the news of better performance in US markets with stocks of Tesla and FAANG (Facebook, Amazon, Apple, Netflix and Google), the recovery of the US economy with vaccinations, economic stimulus and changing monetary policies, all these factors have made investing in US markets a worthy option and attracted investors interest.

If you are looking to diversify your equity mutual fund portfolio by investing in international equities, you could invest in international stocks through mutual funds in India that invest in international equities.

To provide diversification in the shape of international funds to the domestic investors SBI Mutual Fund has launched SBI International Access US Equity Fund of Fund. On the launch of this fund, Mr Vinay Tonse MD & CEO of SBI Mutual Fund said, “The fund house is offering its first international fund the SBI International Access US Equity Fund of Fund, to give investors an opportunity to get an exposure to the well-diversified US market. It has the largest market capitalization and is a core component of major global indices.”

Table 1: Details of SBI International Access US Equity Fund of Fund

Type An open-ended fund of funds scheme investing in mutual fund scheme/ETFs that invest in US markets Category Fund of Fund
Investment Objective The scheme seeks to provide long-term capital appreciation by investing in units of one or more mutual fund schemes / ETF, which are domiciled overseas and predominantly invest in US markets. However, there can be no assurance that the investment objective of the scheme would be achieved.
Min. Investment Rs 5,000 and in multiples of Re 1/- thereafter. Additional purchase amount Rs 1000 and in multiples of Re 1/- thereafter Face Value Rs 10/- per unit
  • Direct
  • Regular
  • Growth
  • Dividend
Entry Load Not Applicable Exit Load
  • – For exit on or before 1 year from the date of allotment – 1.00%
  • – For exit after 1 year from the date of allotment – Nil
Fund Manager Mr Mohit Jain Benchmark Index S&P 500 Index
Issue Opens March 01, 2021 Issue Closes March 15, 2021

(Source: Scheme Information Document)

What will be the Investment Strategy for SBI International Access US Equity Fund of Fund?

SBI International Access US Equity FoF is an open-ended fund of funds scheme that will invest in units of Amundi Funds – US Pioneer Fund, an open-ended fund incorporated in Luxemburg that invests predominantly in equities of companies based in USA. The scheme may also invest in other mutual funds / ETFs which are domiciled overseas and invest predominantly in US markets.

Being a fund of fund, SBI International Access US Equity FoF will follow a passive mode of invest, tracking the performance of the underlying fund — Amundi Funds – US Pioneer Fund or other similar mutual funds/ETFs.

The underlying scheme ‘Amundi Funds – US Pioneer Fund’ invests across a range of sectors with Technology, Financial Services, Consumer Cyclicals, Healthcare, and Industrial having the highest allocation. Large US Corporations such as Apple Inc., Microsoft Corp, Alphabet Inc., Amazon, and Visa Inc. currently form part of the underlying fund’s top holdings.

The scheme will aim to provide international diversification to domestic investors by investing in themes not available in the Indian market.

Apart from at least 95% investment of the total portfolio in overseas financial assets/foreign securities, the fund may also invest up to 5% in of its corpus in money market instruments and/or money market/liquid schemes of SBI Mutual Fund, in order to meet liquidity requirements from time to time.

Under normal circumstances, the asset allocation will be as under:

Table 2: Asset Allocation of SBI International Access US Equity Fund of Fund

Instruments Indicative Allocation (% of net assets) Risk Profile
Minimum Maximum High/Medium/Low
Units of overseas mutual fund scheme(s) / ETFs which invest predominantly in the US markets 95 100 Medium to High
Money Market Instruments, Triparty repo, Reverse Repo, units of Liquid and Money market schemes of SBI Mutual Fund 0 5 Low to Medium

(Source: Scheme Information Document)

Who will manage the SBI International Access US Equity Fund of Fund?

Mr Mohit Jain will be the dedicated fund manager for SBI International Access US Equity Fund of Fund.

Mr Mohit Jain is a Credit Analyst at SBI Funds Management Pvt. Ltd. and has over 7 years of experience in the area of financial services. Prior to this, he was associated with Crisil Limited as Research Analyst.

Mr Jain is B.E (Engineering) and CFA level III candidate and he is the dedicated fund manager for overseas investments for schemes of SBI Mutual Fund.

Fund Outlook -SBI International Access US Equity Fund of Fund

The investment in international equities is utilised to diversify the portfolios that include Indian equities and bonds and are seeking income growth. Equity as an asset class has shown an upward trend in the long run, even though the markets may be volatile in short to medium term time frame.

This scheme will predominantly invest in US markets, the indicative underlying scheme Amundi Funds – US Pioneer Fund; (domiciled in Luxemburg) that invests predominantly in securities in the US markets. Hence, the returns of the fund will be nearly in line with that of the underlying fund.

The investment strategy of this scheme is well suited to invest in the current environment, it allocates between stable growth and quality value stocks based on the risk return potential, it provides exposure to long-term secular themes, which have been accelerating due to the pandemic.

Additionally, as the work-from-home scenario may continue for some extended period; this strategy provides exposure to cloud computing companies that are benefitting in the current environment.

Though international funds may prove beneficial to your portfolio from a geographical diversification point of view, it involves risk factors such as geopolitical risk, currency risk, regulation risk, etc.

If you wish to invest in SBI International Access US Equity FoF, ensure that your risk appetite, investment objective, and time horizon is suitable to this fund and you hold adequate exposure into domestic equites as well.

This article first appeared on PersonalFN here

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