Look for diversification through innovation-driven global businesses and Nasdaq 100 provides you with a convenient way to do that, suggests Dhirendra Kumar
Click here to watch the video
How much international equity fund allocation should we have? Also, for true geographical diversification, how many and which country-specific international funds should we have?
- Dinesh Lawate
I would say that I have approached the idea in a very limited way. The goal of diversification is that you should have a collection of businesses having the potential to deliver you substantial growth and returns over a period of time. We all have our home bias. Our job is here, our home is here and so from that standpoint, we will have a large part of our investments in India. So, look for a fund that invests in those great businesses. Most good growth-oriented multi-cap funds are attempting to do that. So, you can choose a good multicap fund.
Japan has been an extremely rewarding market in recent times but prior to that, it has seen a big struggle over a very long period of time. With Asian equity funds, you don't really know what you're getting into because the universe is big and the kind of investment avenues available to Indian investors through these funds can be very different.
I like US funds simply because of their technology bias. I look at them being heavy on technology companies with a global market. I think of them as US-domicile companies but they are not necessarily US companies. When I look at Facebook, Microsoft, Amazon, etc., I don't think of them as US companies. They are domiciled there but their revenue is coming from all over the world. When we are watching videos on YouTube, Alphabet Inc is making money. On the other hand, when you are using the Windows platform, Microsoft Corporation is making money. Apple Inc's substantial revenue comes from the market elsewhere.
So, the lead provided by technology and innovation, combined with a global marketplace, has enabled the technology business to evolve into a very unusual phenomenon wherein the winner takes it all. In all other industries, we see that there are businesses that compete in a particular sector or in a particular product segment and profits are shared by some players. In technology, we find that the winner actually takes it all. When you buy a PC, it must have Microsoft Windows and there isn't really a number two. Of course, there are alternatives - there is Linux, there are freeware and open-source operating systems. However, the majority of us tend to go with the former.
Likewise, for many other technology products, the winner dominates the marketplace and that is the nature of the business. That is how the industry has been shaped and somehow it has become the rule. It is not about the absence of any competition. I really wonder whether there will be an easy competition for Netflix or YouTube. Of course, with all the changes happening in the industry, there could be one. However, the dominant position that such companies command is entirely driven by innovation, which is quite mind-boggling. Rewards of such innovative successes are something that is unthinkable in terms of the kind of rewards it creates for its investors.
So, I would say that the NASDAQ-100 gives you a very simple vehicle to be a part of that story. It is also possible for Indian investors to make an investment worth US$250,000 anywhere in the world. Buying US stocks has become very simple. Now you have stockbrokers who are making available an opportunity for an Indian investor to buy stocks in the US market up to US$250,000 a year. That is what we are entitled to as per our Liberalised Remittance Scheme. Now, you can even buy these stocks with zero brokerage. However, just don't get attracted to these things for zero brokerage. The important thing is that if you want to go for this, it is now all in the realm of possibility. You can selectively apply your acumen, read more to get to know about businesses and do all of it yourself.
We are planning to expand the coverage of Value Research Stocks in a limited way to some of these international stocks as well. We are working in that direction. But it may take a little longer because we really need to build the capability and we definitely will be very selective about that. But this is the primary thinking, which is driving us to that direction.