Mutual Funds

Franklin India Feeder - Franklin US Opportunities Fund: A good avenue for exposure to US stocks

Anand Kalyanaraman | Updated on September 15, 2019 Published on September 15, 2019

Geographical diversification and unique opportunities bolster case for investing

Diversification is a core principle of portfolio management that helps reduce the overall risk for an investor.

This can be achieved by having investments not just across asset classes in the local market, but also by having some exposure to global markets. Geographical diversification by investing in foreign stocks serves a few purposes.

One, often, global markets do not move in tandem — international exposure can help shield your portfolio from volatility in a single, local market and improve your overall return.

Foreign advantage

Next, there are some listed opportunities that are available only abroad and not in India. For instance, companies at the cutting edge of technology, such as Alphabet (Google’s parent), Facebook, Apple and Amazon. If you want a piece of this pie, there is little choice but to look abroad. Also, the stocks of many foreign companies, with good growth prospects, trade cheaper than Indian ones.

Besides, having foreign currency-denominated investments may be a good idea if you foresee their use in the future — say, to fund your child’s higher education abroad or to buy a house in a foreign country.

The rupee’s decline over the years against major global currencies such as the US dollar and the euro adds to the returns made on investments denominated in such currencies; this trend is expected to continue.

Given this background, investing in foreign stocks through a local mutual fund is a convenient option. It saves you the hassle of opening an overseas broking account, researching foreign stocks, and keeping track of their performance.

The fund manager will do the investing and churning on your behalf — for a fee, of course. Among the funds in India that invest in global stocks, Franklin India Feeder - Franklin US Opportunities Fund is a good choice.

This is an open-ended fund-of-fund that invests in the units of Franklin US Opportunities Fund, an overseas Franklin Templeton mutual fund that primarily invests in securities in the US. Franklin India Feeder fund has a mandate to invest at least 95 per cent of its corpus in Franklin US Opportunities.

In line with this, the feeder fund is almost fully invested in the parent fund (99.84 per cent of the portfolio as of August 2019).

Franklin India Feeder - Franklin US Opportunities has a good track record with annualised returns (in rupee terms) of about 13 per cent over five years and about 17 per cent since its launch in early 2012. This is better than the performance of most other India-based international funds. Over the past year, the fund’s return is about 3 per cent, in contrast to the negative returns posted by many domestic funds, indicating the advantage of international diversification. The underlying fund, Franklin US Opportunities, is benchmarked to the Russell 3000 Growth Index.

Portfolio

While Franklin US Opportunities can invest across market caps, its holdings are mostly in large-cap US stocks (about 80 per cent as of August 2019). The fund’s major holding (about a third of its corpus) is in technology stocks, and it also has exposure to other sectors such as financial services, consumer cyclical, healthcare and industrials. A large portfolio of nearly 80 stocks diffuses concentration risk. The top 10 holdings of the fund include Amazon, Microsoft, Mastercard, Visa, SBA Communications, Alphabet, Apple and Adobe. Many of these stocks have delivered strongly over the past few years.

A word of caution here. The US stock market has been having a strong run, despite the ongoing US-China trade war and global growth challenges.

Investors will be better off taking the systematic investment plan (SIP) route to investing in the fund to hedge against downside risks and make use of possible downturns. Exposure to international funds can be limited to 10-15 per cent of an investor’s overall portfolio.

For tax purposes, Franklin India Feeder - Franklin US Opportunities will be treated as a non-equity fund. So, short-term gains (on sale of units held for up to 36 months) will be taxed at the investor’s slab rate, while long-term gains (on sale of units after 36 months) will be taxed at 20 per cent after indexation.

 

Published on September 15, 2019
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