Investica’s Recommendation: Two US Equity Funds ideal for long term
June 20203 min read
This week, in Investica’s recommendation, we have not one but two funds. And this time, we are looking at pure US Equity Funds which will be ideal for your portfolio; if you wish to invest for the long term. Adding US Equity funds not only gives the benefit of diversification but also gets additional returns if the rupee depreciates against the US dollar.
These two US Equity Funds are Franklin India Feeder Franklin US Opportunities Fund and ICICI Pru US Bluechip Fund. Let’s deep dive into these funds and see what sets them apart.
Performance of US Equity Funds
It goes without saying that past performance is not an indicator of future performance. However, we look at the past performance to get an idea about the fund’s capability to deliver returns and to check for consistency in returns. Let’s first look at the performance of these two funds and then try to interpret it.
The 1-year return of these funds is on the account of extraordinary performance or US stocks and the rupee depreciation. A year back, 1 USD was INR 69.291 and the same 1 USD is now INR 75.285.
Even though these returns may not be replicated in the future, one thing to note is when Indian markets delivered sharp negative returns over the last one year, US markets outperformed. The point of introducing foreign equity is to reduce the downside risk and to diversify geographically.
But what exactly is different between these two funds? Let’s look at the portfolio to understand the details.
Portfolio of US Equity Funds
One major differentiation between Franklin India Feeder Franklin US Opportunities Fund and ICICI Prudential US Bluechip Fund is the overall fund structure. Franklin India Feeder Franklin US Opportunities Fund is a Fund of Fund that means that it invests in the fund which is managed and run by the US arm of Franklin Templeton. Whereas, ICICI Prudential US Bluechip Fund is managed out of India by Indian fund managers.
Additionally, Franklin Fund is managed as the US multi-cap fund and the ICICI Fund is managed as the US Bluechip Fund. Here’s how the two portfolios look:
Looking at both the portfolios, here’s why it makes sense for you to include any of these funds:
- Higher exposure to Software and Pharma stocks: Most of the Indian diversified equity funds have high exposure to banking & financial services as India is a developing economy. But when we look at US markets, major share is of the new age technology and pharma companies. This helps you participate into the latest technological advancements and diversifies the portfolio.
- Developed Economy like the US can provide stability when Indian equities are underperforming: Last year is a good example of this. When Indian equities were going through extreme volatilities; US equities gave very good returns. On an overall portfolio level, this can work out well as the downside will be contained.
Should you invest in US Equity Funds?
The first thing to note before discussing the fund suitability is like any other equity funds; US equity funds can also undergo volatility over the short term. Hence, you should choose to invest in these funds; only if you have an investment horizon of more than 5 years.
Coming back to which one of these two funds you should invest in. If you are a conservative investor and wish to take the lesser risk then you can go with ICICI Pru US bluechip fund. However, if you can take on high risk, then you should invest in Franklin India Feeder Franklin US Opportunities Fund.
These funds are good for portfolio diversification hence invest in Indian equity funds first and add the US equity to diversify the portfolio. Limit the exposure up to 15-20% of the total portfolio. The reason for this is since we are not active participants in the US economy; we may not be able to understand all aspects of the same. Limiting overall exposure gives the benefit of diversification and limits excessive risk.
Additional Tip: Do you or your children have a higher education goal in the US? Or do you want to plan for a vacation in the US?
If yes, then you should definitely invest in US equity funds. These funds give you exposure to US currency appreciation. This is a great way to take benefit of US dollar appreciation and invest in some of the top companies across the globe.
As always, make sure that this fund is suitable for you before investing. Reach out to us if you need more information.
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