30 NOVEMBER, 2021

Elon Musk, CEO of Tesla Motors and SpaceX, famously said in 2013, “I wish to die on Mars, just not on landing.” The technology leaps his companies have taken over the last few years with this vision in mind have today propelled them into becoming some of those most sought after by investors. At one point of time, long before his company went public, Facebook CEO Mark Zuckerberg said, “There is a huge need and a huge opportunity to get everyone in the world connected… and we believe this is the most important problem we can focus on”. Today, Facebook is one of the most valuable companies listed on the stock market.

What does this mean to you as an investor? There are numerous opportunities out there which are attracting the brightest minds on the planet, and these are being converted into highly profitable businesses, driven by rapid pace of technology and the minds developing it. Investing in companies that are creating new ways to tackle some of the biggest challenges and making money in the process seems like a fantastic opportunity to create wealth. After all, investors in companies like Tesla, Facebook, Salesforce, Microsoft, NVidia, and many others have made amazing returns on their investments. The core of their growing valuation has been the development of Intellectual Property (IP) that has tremendous revenue generation capability. An investment in companies creating such Intellectual Property will add significantly to your investment portfolio growth over time.

Global and international funds

But how do you identify these opportunities? It’s physically impossible to keep track of all the companies across markets around the world. Additionally there is a limit on how much you can invest in these opportunities directly. As a retail investor, the opportunity for you therefore lies in the space of global and international funds. These are essentially funds that invest in opportunities across the world, focused on high growth sectors that yield significant returns, such as healthcare and technology, etc.. Some international funds are also sector-specific in nature, maintaining a focus on specific industries and verticals where they see tremendous opportunity.

Types of funds

At a broad level, funds that invest across the world in different markets are divided into four major types.

Global funds: These are funds that invest in opportunities in markets anywhere across the world, including the country in which the fund is located. These could be broad-based or sector-specific, based on the experience and knowledge of the fund management. Examples include global technology funds or mining funds.

International funds: These are funds that invest in opportunities in markets across the world, except in the market where they are based. This is a critical difference in the nomenclature of this fund as compared to the previous type of fund. Again, these too can be focused on specific industries or on markets as a whole.

Region specific funds: These are funds that, as their name suggests, focus on investment opportunities within a specific region, such as US, Europe, China, ASEAN, etc.

Country-specific funds: Again, certain specific markets may show tremendous opportunity for growth. Funds that focus on a specific market fall under this category, e.g. a fund investing in Japanese companies or US blue-chip companies.

Another classification for such funds is based on whether the fund is a parent or master fund, or a feeder fund. A master fund is located in the market in which it invests, and the feeder funds are typically located in countries from where the investors originate. For example, a feeder fund based in India, China or Italy represents an opportunity for investors from that country to invest into a master fund based in the US that is into technology sector companies.

Long-term opportunity

Global or international funds are long term investment instruments that may yield returns over a 5 to 10 year window. Therefore, these are not funds recommended for those new in investing. Ideally, investors already owning a broad portfolio in the domestic market should look to expand their opportunities through a global fund. While the risk on these funds is relatively higher than domestic funds, the returns can also be proportionate. Some of the advantages of owning a global fund investment include:

  1. Tapping into multiple market opportunities across geographies
  2. Gaining insight into the economies of many countries around the world with the help of expert management teams
  3. Opportunity to have global market leaders in your portfolio of investments
  4. Currency hedging across global markets, thereby increasing the returns in domestic valuation

However, keeping in mind the value variation that can occur in the short to medium term, investors should ideally have no more than 10-15% of their equity investments in this category to reap sufficient rewards without undue risk to the portfolio.

Check out Kotak’s currently recommended International Funds below:

Fund Name Min SIP Amount (₹) Launch Date 1 year 3 years 5 years

Franklin India Feeder - Franklin U.S. Opportunities Fund

500

06-Feb-2012

26.87%

30.02%

24.68%

Invesco Global Consumer Trends^

(Invesco India - Invesco Global Consumer Trends FoF)

500

09-Aug-1999*

3.70%

23.85%

21.08%

Wellington Global Innovation Fund^

(Kotak Global Innovation Fund of Fund)

100

16-Feb-2017*

12.9%

27.7%

--

Source: MFI Explorer | Data as on 30th November, 2021 | ^Underlying fund returns are calculated by converting USD to INR using RBI reference rates | *Underlying fund’s launch date

Recap

Global and international funds represent a long-term investment strategy designed to tap into growth opportunities across the world. Keeping in mind the scope for technology and other developments taking place around the world, a savvy investor should consider having a small portion of his portfolio allocated to such opportunities, in order to accrue benefits that innovation and global changes create. While these are investments requiring higher risk appetite, they can be tapped into by seasoned investors looking to enhance the growth of their existing portfolio through diversified opportunities.   

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Kotak Mahindra Bank Limited, AMFI Registered Mutual Fund Distributor. AMFI Registration Number (ARN) 1390.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.