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There is not much good news for corporate India currently, with low growth rates, ballooning deficits, high inflation and slowing corporate earnings.
A possible shift in investor interest globally from the emerging markets to the developed ones, is also a possible risk. Indian investors can thus examine the possibility of owning 5-10 per cent of their portfolio in US focussed funds.
This apart, a weak rupee vis-à-vis the US dollar also might bolster returns for domestic investors.
In this backdrop, JP Morgan has launched the JP Morgan US Value Equity Offshore (JP Morgan US Value), a fund-of-fund which invests in the parent’s US-based scheme.
Pros and cons
The parent fund has delivered a compounded annual return of 28.4 per cent over the past three years.
Stocks trading at valuations that are much lower than domestic companies, corporate America sitting on piles of cash — along with reasonable growth prospects for cyclical sectors — argue in favour of US stocks.
Improvement in indicators such as housing starts, household debt and profits as a proportion of GDP, also point to a revival in the US economy.
JP Morgan US Value is benchmarked to the Russell 1000 value index. This will make for a broader portfolio.
Across sectors such as financial services, technology, telecom, industrials, utilities, consumer staples, pharmaceuticals and oil & gas, there are US companies that are global in reach and size but are still trading at reasonable valuations.
The fund fact sheet indicates that the Russell value index trades at 13.3 times forward earnings, while its own portfolio is valued at a marginally lower price-earnings multiple. Exxon Mobil, Wells Fargo, AT&T, Pfizer and Johnson & Johnson are some of the fund’s top holdings.
Return on equity of the scheme’s portfolio is a healthy 14.5 per cent, which is better than its benchmark. The portfolio appears firmly anchored by value.
JP Morgan’s other fund-of-funds focused on the Asean region and China have done quite well.
However, investors considering this fund must note here are older funds with a similar focus already available in the market. FT India Feeder – Franklin US Opportunities, DSP BlackRock US Flexible Equity and ICICI US Bluechip are other options.
It must be noted that investments overseas must be considered only for the purpose of diversification, where small amounts of surplus cash can be deployed at periodic intervals. A moderate to high risk appetite is required.
Risk related to currency movement also has to be factored in. Another point to note is that investments in overseas funds or fund of funds are treated as debt schemes for taxation purposes.
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