Twitter Inc., the company which has brought about a
communication revolution across the globe, will offer its shares for
sale to the public in the next few weeks. A Mint Money article (read
here: http://goo.gl/syFLnh
) this week showed that while technically it is possible for
resident Indian investors to apply for the initial public offer, for all
practical purposes it won’t be successful. Nevertheless, as
globalization is now part of the fabric, even domestic investors want a
piece of the global pie.
If you look at the section in the Securities and Exchange Board of
India’s website which shows pending offer documents from asset managers,
you will find at least six draft offer documents for global funds filed
in the last three-four months. This is not surprising since the recent
experience in terms of returns from many international funds has been
quite positive. A selection of the top 10 international funds in terms
of performance show returns ranging from 26% to 50% in the last one
year.
In the Morningstar Investment Conference 2013 held on 22
October in Mumbai, a panel of four experts thrashed out the modalities
of global investing or investing beyond borders and the implications for
Indian investors.
It’s not just about returns
A simple way to look at investing in global funds is to
consider it as a currency hedge. This works particularly well for a
currency like the rupee which is in danger of depreciating further
against the dollar despite the recent pull back. However, the panel
warned that investing in overseas assets should not only be about
returns and currency exposure. In fact international funds linked to
shares of gold mining companies have delivered negative returns in the
last one year despite the currency move. And the sheer range of positive
returns of 5-50% means that returns and currency can’t be the only
criteria.
Investing in global funds is more about seeking
diversification; adding to your existing portfolio in a manner which
complements existing assets. Sample this: if you are only investing in
assets from a particular country, say India (equity or fixed income),
essentially you are exposed to any news and events that can have an
impact on the value of these assets and to that extent your risk is very
concentrated within one geography. Investing in global assets can help
to diversify this risk. According to Harshendu Bindal, president,
Franklin Templeton Investments India, “Diversification has to be about
risk and not just return.” In this context he said that the case for
global funds needs to be made more strongly.
According to Vikram Kuriyan, director, Centre for
Investments, faculty at the Indian School of Business, “In the long
term, diversifying assets across geography makes sense and the trend
will definitely pick up over the years.”
Emphasizing the need to look at global investing beyond
the purpose of hedging, Chris Galloway, managing director, Morningstar
Investment Management, Asia-Pacific, says, “It is a mistake to invest
globally on the basis of currency exposure. While investors need to
start investing at home, anything they add to a portfolio in terms of
global assets have to be complimentary either on the risk front or on
returns.” He later added that currency does play an important role and
based on the purpose of the investment, one has to consider whether or
not to hedge the currency exposure.PRASHANT SHARMA
PGDM-I
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