Here's one for diversification. There has been a great deal of debate as to why one should invest overseas if our own market is doing fine. But that was when every thing was going right, i.e. pre-elections. Post-elections, things have changed dramatically and Indian equity investors are still reeling under the crash of May 17 – the day Sensex lost 11 per cent. Had some of your money been invested overseas, you could have curtailed your losses. This highlights the benefit of international diversification, which Principal Global Opportunities offers. India's only international equity fund (launched in March 2004) has gained 3.86 per cent in the five months ending August 30, 2004. In the same period, the BSE Sensex has declined 7.23 per cent.
Principal Global Opportunities fund, as the name suggests, invests in stocks of foreign companies. But there are some limitations to the scheme. As per SEBI rule, it can only invest in those foreign companies, which are listed and have a 10 per cent holding in a listed Indian company.
In its four-month stint, the fund has largely invested in Basic/Engineering and FMCG stocks, together accounting for one-third of the fund's portfolio. And in terms of global diversification, 30 per cent of the fund's assets are invested in US stocks, 27 per cent in Japanese stocks and 34 per cent in European company stocks. As on July 31, 2005, the fund's top five holdings were Philips Electronics (Holland), Cummins (USA), Denso (Japan), Nestle S.A (Switzerland) and Procter & Gamble (USA). These five stocks together account for 27 per cent of the fund's portfolio.
Investment in Principal Global Opportunities fund should only be considered if you already have some exposure to Indian equities or mutual funds. That's because it is quite possible that what happened in Indian equity markets in May 2004 could happen in any of the global markets. In fact, the perfect example has been the month of July 2004 -- Principal Global Opportunities lost 2.14 per cent as most of global equity markets took a beating following rise in international crude oil prices. But Indian markets recovered sharply in July -- BSE Sensex gained 7.82 per cent. Thus, international investing only helps if this is in done in addition to the domestic equity investing.