Dow, S&P 500 and Nasdaq are trading at record highs and have in them many of the world’s most innovative, fast growing and profitable companies. Companies such as Apple, Google. Amazon and Facebook have redefined the way the world works. It would make sense to own a few of these stocks but opening foreign broking and demat accounts is not easy for Indian’s even though technically RBI allows individuals to invest USD 250,000 every year to invest abroad which can be in foreign currency stocks.
Mutual funds that invest in global stocks without charging high fees are ideal for individuals looking to invest in global equities. Preference should be ETF’s with the lowest cost or highly transparent and clear focus funds that charge low fees.
US Equities and USD at record highs
Expectations are that the incoming President Trump’s policies on infrastructure and deficit spending, protectionism and immigration reform may push prices higher in the U.S, spur inflation which in turn will raise interest rates which is good for the USD.
The Trump win has spurred US stock markets and the Dow Jones index is close to hitting 20000, a record high.
In the recently held FOMC meet, Janet Yellen hiked interest by 25 bps. This was on back of good economic data from the US this year. US economy saw steady pace of job growth with falling unemployment rate and rising consumer confidence. Private sector has added 15.6 million jobs in last 6 years and in November 2016 unemployment rate in US hit 4.6% for the first time since 2007.
The US economy advanced 3.5% in Q3 of 2016, up from 1.4% in the previous period and better than a 3.2% in the second estimate. It is the highest growth rate in two years. The FOMC raised its GDP growth forecasts for 2016 to 1.9% from 1.8% in the September projection and for 2017 to 2.1% from 2% previously estimated.
USD Index is currently trading at around 103 which is close to its all time high.
Sitting in India if we believe that USD is going from strength to strength and their stock markets will deliver good returns and don’t want to go through the trouble of opening an account with an international stock broker then here is an easy way to invest in US equities.
Indian Asset Management Companies have launched many international equity funds where you can invest in INR. Minimum investment limit in these funds are low so even small sums can be invested in these funds too.
There are many different types of international funds like China, Brazil, Latin American or European focussed funds. But in this post we are talking specifically about only US based funds, which are broadly of two types,one is feeder funds where the Indian fund invests into a US based fund which invests into US stocks, other is a fund which invests directly into US Stocks.
Either of the above serve the purpose of investing in US based equities easily. However feeder funds are more expensive as investor has to pay cost of two funds, the domestic and foreign funds.
Funds which invest in Direct US stocks
1.ICICI Prudential US Bluechip Equity fund – Direct Growth.
2. Reliance US Equity Opportunities Fund – Direct Growth
3. Most Shares Nasdaq 100 – This is Exchange traded fund.
Funds which are feeder funds
1.DSP Blackrock US Flexible Equity fund Direct Growth, feeds into the International Fund (BlackRock Global Funds – US Flexible Equity Fund)
2.Edelweiss US Value Equity Offshorefund Direct Growth, feeds into International Fund (JPMorgan Funds – US Value Fund)
3. Franklin India Feeder – Franklin US opportunities fund Direct Growth , feeds into International Fund (Franklin U.S. Opportunities Fund, Class I (Acc)
4.Kotak US Equity Fund – Feeder Fund Direct Growth ,International Fund (PineBridge US Large Cap Research Enhanced Fund Class “”C””)
Source : Icraonline
Point to note is that these funds are taxed as debt funds so you have to stay three years and then the gains will be taxed as long term capital gains @ 20% + surcharge if any with indexation benefits.
Look for exit loads as many of them have exit loads from 1-3 years of upto 1%
When you invest in these funds you need to keep in mind that these funds convert your Rupee into USD when you invest and convert USD back to Rupee when you redeem.
Hence it is double play on USD strength and US stock markets. If rupee depreciates during the time of your investments your return improves and if it appreciates you return declines.
Equity markets in the US have run up a lot but it can run up further if Trump delivers on all his promises of infrastructure spending and corporate tax cuts.These funds can be considered for investment as the outlook looks good for US equities and there will be some geographical diversification in your portfolio.