Investing in International Mutual Fund Schemes? Check Out Their Favourite Stocks!

Indian stock market indices are trading at an all-time high and analysts have been apprehensive about how much steam is still left given the tepid recovery in the domestic economy. One way for local investors to diversify risk is to look to spread the bets with some allocation to foreign companies. One of the routes of doing so is via international mutual fund schemes.

While some fund managers handling flexi-cap (previously multi-cap) schemes have benefited from selectively making offshore investments, a more direct hedge for investors looking to derisk their exposure in India is to pick funds that solely invest overseas.

Fund of Fund or Active Mutual Funds – Which Has Done Better?

There are two typical sets of such mutual funds with one group largely tracking a foreign index as an exchange-traded find (ETF) or basically act as a fund of funds. Interestingly, these funds appear on top of the table if one stacks all international funds based on their three- and five-year returns.

Top 4 International Mutual Fund Schemes

Of the five international mutual fund schemes that have consistently generated at least 20% returns over a long period, four are those that track some index or invest in an underlying international fund acting as a feeder.

These four are Motilal Oswal Nasdaq 100 ETF, Franklin Feeder Franklin US Opportunities, PGIM India Global Equity Opportunities and Edelweiss Greater China Equity Offshore.

What is interesting is that while two of these four (PGIM and Edelweiss) follow a passive strategy, their expense ratios—or the fees they charge annually for managing the money—is on a par with active fund managers and in the 1-1.5% range. In comparison, typical management fees for passive international funds are in the 0.5-0.7% range.

Meanwhile, the sole outsider in this top-performing group is Nippon India US Equity. The only other international mutual fund that also scored 20%-plus returns in the last three years but marginally fell out from the club over the five-year time horizon is ICICI Prudential US Bluechip Equity.

Sectors, Stocks Where Active Funds Have Bet

Both the funds have the same five sectors topping the list: technology, services, healthcare, financials and FMCG. The only key difference is that Nippon has been overweight on services and healthcare compared to its peers. It has been underweight on FMCG and slightly less bullish in its portfolio construct on technology and financials.

On the other hand, ICICI Prudential US Bluechip has been overweight on healthcare and slightly more bullish on tech and FMCG sectors. It is underweight on financials and services stacks.

Notably, both these top performers have been underweight on consumer durables, which otherwise is among the key sectors for other international fund managers from India.

The common stocks that both these funds own are Alphabet Inc, Microsoft, Facebook and Amazon. These stocks also find a place in the portfolio of Parag Parikh’s flexi cap fund, one of the top performers in the flexi-cap group.

Nippon’s international fund has a total of around two dozen stocks. But it has a more concentrated portfolio with the top five stocks representing a third of the total basket. 

The Nippon fund also has Netflix in its portfolio. Netflix, along with Facebook, Amazon, Apple and Google parent Alphabet are the famous ‘FAANG’ stocks that have led the technology pack in the last few years.

These apart, Nippon is also bullish on Mastercard, Iqvia, Enbridge and Lowe. 

ICICI Prudential has its eyes set on ServiceNow, Tyler Technologies and Zimmer Biomet, though its wider basket means there is much less to differentiate among the stocks it owns.