The toppers were from Mirae Asset Mutual Fund. Mirae Asset NYSE FANG+ETF FoF and Mirae Asset S&P 500 Top 50 ETF FoF gave 80.22% and 48.54% returns respectively in the last one year.
Are you wondering how Mirae Asset NYSE FANG+ETF FoF has managed to deliver this performance? “Largely, this performance is reflection of reduction of various uncertainties that were prevailing in the first of half of 2023, for example, recession probability has gone down, inflation has reduced due to rate hike but same didn’t have anticipated adverse impact on growth and employment US economy has remained on solid growth trajectory for the entire 2023 calendar year. Inflation is still elevated but has cooled down. In fact, at the start of year, market was anticipating 4-6 rate cut of 25bps each, However, there has been revision in that estimate, as result we have seen correction in the US market for the month of April 2024,” said Siddharth Srivastava, Head – ETF Product & Fund Manager, Mirae Asset Investment Managers.
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He added, “Apart from macro-economic tailwind, the corporate earnings of Magnificent 7 has been upbeat and better than expected. For instance, on 12Month trailing basis as on April 30, 2023, the EPS for NYSE FANG+ Index in last 12 month has grown from 164 to 240 i.e. almost 47% in USD terms compared to 21% growth in NASDAQ-100 Index. So the combination of cooling of macro-economic uncertainty along with corporate earning growth of magnificent seven has contributed to this return.”
Edelweiss US Technology Equity FOF and DSP Global Innovation FoF delivered 48.38% and 45.92% in the said period. PGIM India Emerging Markets Equity Fund Aditya Birla SL Global Excellence Equity FoF delivered 32.55% and 32.48% returns respectively. Axis Greater China Equity FoF and Edelweiss Gr China Equity Off-Shore Fund delivered 3.28% and 2.55% returns respectively in the last one year. DSP World Agriculture Fund and Mahindra Manulife Asia Pacific REITs FOF lost around 6% in the said period. The international funds investing in the greater china economy have been the laggards. Should one invest in these funds?
“Contrary to expectations, China’s reopening rebound in 2023 proved disappointing with its property market continuing to be a major overhang. The growth in China has picked up in recent months aided by policy stimulus which should continue to benefit in the near term. We think that property market downturn is likely to continue to be a drag on the market in the near term. In the long term, due to demographic challenges and diversification of the global value chain, we expect that the growth rate of China will recover but the long-term growth trend may be slower than the earlier pre COVID norms,” said Srivastava.
“Though China may face uncertainties, valuations are discounted and fundamentals appear to be improving, though not at the pace at which we desire. Despite the government’s efforts to stabilize the economy, it will likely take time for these policies to translate into growth. We expect monthly data to fluctuate. We are cautious on China from a broad perspective due to underlying issues mentioned earlier and sustained positive indicators on the economy is needed to alter the view but we do see tactical opportunities in the non-property, non-financial sector at attractive valuations amidst pessimism. We like Chinese tech companies, the digital economy sector and that is evident in earnings as well,” he adds.
He further added, “ If you look as on March 31, 2024, 12M trailing EPS of Hang Seng Index has grown by 5.6%, CSI 300 Index has seen EPS growth of -4% whereas Hang Seng TECH Index has seen earnings change from 118 to 200 i.e. 70% growth in the EPS. The valuations of Chinese tech are reasonably attractive from a long-term investment perspective, for 3-4 yr. investment horizon from here on.”
Sebi told mutual funds to stop fresh subscriptions in overseas ETFs with effect from April 1 as the $1 billion investment limit is about to get breached. After this many mutual funds stopped accepting fresh investments in their overseas ETFs.
The limits are expected to be breached and fund houses not accepting investments, should one worry about their investments?
“Investors need not worry as the limit imposed by the regulator is on the fresh investment. Investor’s can anytime redeem their money. All the AMC’s are facilitating seamless redemption in their schemes. In case of ETFs, investor’s are requested to look at the Intraday Net Asset Value (I-NAV) being published by AMC on their website before their trade and prefer to use limit order while buying and selling ETFs on exchange,” said the fund manager.
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In the last six months, international funds gave an average return of 14.48%. In the last three and five years these schemes gave an average return of 5.29% and 10.18% returns respectively.
After seeing this performance by the international funds, should you invest in these funds?
“In the US, corporate earnings for the first quarter generally exceeded expectations with a higher-than-expected growth rate compared to forecasts. As per FactSet, for March 2024 (Q1 2024), 92% of the constituents of S&P 500 Index have declared their earnings. 78% of S&P 500 companies have reported a positive EPS surprise (i.e. actual EPS higher than the market consensus) and 59% of S&P 500 companies have reported a positive revenue surprise (i.e. actual revenue higher than the market consensus),” said Siddharth.
He adds, “Further, in the month of April 2024, there was a significant shift in market sentiment regarding the Federal Reserve’s potential actions as the probability and magnitude of rate cuts decreased leading to investors realizing that the inflation and interest rates are not coming down as quickly as was expected at the beginning of the year. For instance, during the last quarter of 2023, the market was expecting at least three rate cuts starting from June 2024, however, the current consensus is of one 25bps rate cut (if any).”
He recommends, “For CY 2024, consensus estimate is for (year-over-year) earnings growth of 11.1% as per FactSet. Overall we remain neutral on the US as valuations are stretched, though any reasonable dip should be viewed as a potentially good entry point to participate in the US market especially in tech. For the China market, we remain cautious and prefer the non-real estate and non-banking sector, preferably largely in Tech and digital economy. The earnings have been good by the underlying companies however the market hasn’t rewarded them due to cautious outlook on macro-economic and geopolitical uncertainty. While valuations are very attractive and tactical investment makes sense, we suggest that only investors with high risk appetite and who are comfortable with high volatility may seek tactical exposure in the Chinese market.”
International funds cater to different broad international markets, commodities, foreign indices, among others. That means you should pay extra attention to your investments in international funds. Pay extra attention to which geography or indices you are investing in. Also, you should keep in mind that geographical diversification always doesn’t translate into great returns. Developed markets, by definition, offer modest returns. An emerging market like India might offer better returns over a long period. That is why overseas funds are not recommended to small investors. They are mostly recommended to investors with very large portfolios looking to diversify across geographies.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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