Indian investors have participated primarily in domestic markets, restricting their portfolio from global equities. However, investing in global markets allow investors expand their investments for healthier returns, with several opportunities to invest across sectors, geographies, and other emerging markets.
The Indian markets have a lower correlation with the international markets, which reduces the overall portfolio risk. The US equity markets have provided attractive returns with low risk and offer diversification benefits due to low correlation with Indian equities.
The factors that impact US stocks might be different from the factors that influence domestic stocks. Thus, when Indian equity markets turn volatile, the exposure to US stocks in your portfolio can reduce the negative impact.
On this backdrop, IDFC Mutual Fund has launched IDFC US Equity Fund of Fund. It is an open-ended fund of fund scheme investing in units/shares of overseas Mutual Fund Scheme (/s) / Exchange Traded Fund (/s) investing in US Equity securities.
On the launch of this fund, Mr Vishal Kapoor CEO at IDFC Asset Management Company Ltd. said, “Including an international fund helps bring a geographical diversification to an investor’s portfolio. However, before selecting an international fund, an investor should check if the fund is complementary. IDFC US Equity Fund of Fund provides complementary addition to the investor’s portfolio as it has a low correlation with Indian equities. Additionally it offers investors the powerful opportunity of investing in US equities and participation in a significant global revenue pool.”
“The US economy started showing signs of economic revival, supported by the aggressive vaccination rollout, flattening curve of the Covid-19 cases, progression towards herd immunity, reopening of establishments, and fiscal stimulus by the government. The US market is at the forefront of new-age innovations across different sectors and investors can reap the benefits of those unique businesses. Investors can add currency exposure to their portfolio to meet future expenses and participate in innovative themes, which are expected to advance the US economy further. Pent-up demand aided by low debt levels and high net worth is expected to drive GDP growth in the second half of 2021, which is expected to range between 6-7% for FY21, the highest in almost 40 years.”
Table 1: Details of IDFC US Equity FoF
|An open-ended fund of fund scheme investing in units/shares of overseas Mutual Fund Scheme (/s) / Exchange Traded Fund (/s) investing in US Equity securities.
|Fund of Fund (Overseas)
|The Fund seeks to generate long-term capital appreciation by investing in units/shares of overseas Mutual Fund Scheme (/s) / Exchange Traded Fund (/s) investing in US Equity securities. However, there can be no assurance that the investment objective of the Scheme will be realized.
|Rs 5000/- and in multiples of Re 1/- thereafter. Additional Purchase Rs 1000/- and in multiples of Re 1/- thereafter.
|Rs 10/- per unit
|Russell 1000 Growth Index (Total Return Net of 30% withholding tax)
|July 29, 2021
|August 12, 2021
(Source: Scheme Information Document)
The investment strategy for IDFC US Equity Fund of Fund will be as follows:
IDFC US Equity FoF will predominantly invest in units/shares of overseas Mutual Fund Scheme (/s) / Exchange Traded Fund (/s) investing in US equity securities, except to meet its liquidity requirements.
The underlying fund (/s) will be based on the existing US market view and outlook of the fund manager. Currently, the fund invests in an underlying fund with a growth-style investing, i.e. JP Morgan US Growth Fund. It is a carefully chosen fund with a well-tested investment process and well-proven track record.
This scheme will follow a passive investment strategy and invest in units of the overseas underlying fund that uses a fundamental, bottom-up stock selection process and targets companies with strong fundamentals that have the ability to deliver higher earnings growth than market expectations.
The underlying fund consists of 60-90 stocks in the portfolio, majorly large-cap biased with some mid-cap exposure. It has broad exposure to US equities along with global exposure, as 40% of the revenue of the underlying stocks are contributed by countries outside the US.
It is actively managed by a team of fund managers with an in-depth understanding of the US markets. It aims to provide access to unique business models and companies to generate long-term capital appreciation.
The following is the list of Top 10 constituents and sectors of underlying scheme by their weightage as of May 31, 2021:
(Source: IDFC US Equity FoF PPT)
About the benchmark
The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the US equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. It tracks the highest-ranking 1000 stocks in the Russell 3000 Index, which represents 90% of the total market capitalization of that index.
Being a Fund of Fund, this scheme will invest 95% of its assets in units/shares of overseas mutual fund scheme (/s) / exchange traded fund (/s) investing in US equity securities. It may also invest up to 5% of its assets in debt securities, money market instruments, and/or units of debt and liquid schemes.
Under normal circumstances, the asset allocation will be as under:
Table 2: Asset Allocation of IDFC US Equity FoF
|Indicative Allocation (% of assets)
|Units/Shares of overseas Mutual Fund Scheme (/s) / Exchange Traded Fund (/s) investing in US Equity securities*
|Debt Securities, Money Market Instruments, and/or units of Debt and Liquid schemes
|Low to Medium
*The scheme intends to invest maximum of USD 400 million in overseas securities / Overseas ETFs. This limit will be applicable for a period of six months from the date of closure of NFO, subject to overall limit of fund house up to maximum of US$ 1 billion. In case of investment in overseas ETFs, the overall ceiling of fund house will be subject to a maximum of US $ 300 million.
(Source: Scheme Information Document)
Who will manage the IDFC US Equity Fund of Fund?
Mr Viraj Kulkarni (for overseas investments) and Mr Harshal Joshi (for domestic fixed income securities) will be dedicated fund managers for this scheme.
Mr Viraj Kulkarni is Associate Vice President – Equity Fund Management at IDFC Asset Management Company Ltd. He is a CFA, PGDM (Finance), B.tech (Electronics Engineering) with experience of over 9 years. Prior to joining IDFC AMC, he was associated with Franklin Templeton Asset Management (India) Pvt. Ltd. as Management Trainee and at Goldman Sachs Services as Analyst, Wealth Management Technology.
Mr Kulkarni has be appointed as dedicated fund manager for investments in foreign securities. He currently does not manage any other scheme.
Mr Harshal Joshi is Vice President – Fund Management at IDFC Asset Management Company Ltd. His qualification includes PGDBM and has an experience spanning over 13 years in Mutual Funds. He has been associated with IDFC AMC with Fixed Income Investment team. Prior to this, he has worked with ICAP India Pvt. Ltd.
The other schemes he manages are IDFC Arbitrage Fund, IDFC Equity Savings Fund, IDFC All Seasons Bond Fund, IDFC Cash Fund, IDFC Ultra Short Term Fund, IDFC Money Manager Fund, IDFC Government Securities Fund – Constant Maturity Plan, and IDFC Fixed Term Plans.
Fund Outlook – IDFC US Equity Fund of Fund
IDFC US Equity FoF aims to passively invest in units of the JP Morgan US Growth Fund that provides a broad exposure to US equity markets without any sector or market cap bias, and builds a portfolio of high conviction companies.
The underlying scheme is positioned to benefit investors from the reopening of the US economy, while majorly being invested in long-term secular trends. It will adopt a bottom-up approach to identify companies with a large addressable market undergoing a meaningful change, ESG complaint with sustainable competitive advantage, and strong price momentum.
This scheme offers investors with international allocation and diversification in their portfolio, by investing globally, with exposure to innovative companies having structural growth potential. Being a fund of fund, the performance of this scheme will depend on the performance of underlying fund and aim to generate returns in line with that of the underlying fund.
However, do note that even if the fund offers global investing opportunities in the US equity markets, it will be prone to various risk such as, the geo-political risk, currency risk, and changes in social situation of the countries the underlying fund is investing in. This may affect the fund’s performance and therefore makes it a risky proposition.
This scheme is suitable for investors willing to diversify their portfolio internationally. However, ensure that you have high-risk appetite, a long investment horizon and your investment objectives align with the fund.
This article first appeared on PersonalFN here