Once upon a time, investing abroad through offshore or global funds garnered much investor attention of Indian investors - especially when everything seemed perfect in the global economy. It was an exuberant period of risk-on, and financial advisors propagated the need for 'geographical diversification'. But the aftermath of the U.S. subprime mortgage crisis , situation of debt-overhang in the Eurozone (amidst tepid growth), remorse economic conditions in Japan, and economic slowdown of China; invoked a reality-check and made investor sapient. Investors over the past few years have refrained going gung-ho and have become more careful.
Not all offshore / global funds have exhibited a stellar show, and those who have, the risk taken (denoted by the standard deviation) to clock returns are considerably high. It reflects the extreme turbulence amidst the path of wealth creation, which not all investors are comfortable with.
Report card: Risk-return trade off of offshore funds
| Scheme Name |
1 Yr (%) |
3 Yr (%) |
5 Yr (%) |
Sharpe Ratio |
SD Annualised |
AUM at inception (Rs in Cr.) |
AUM as on Jul'16 (Rs in Cr.) |
| Birla SL Intl. Equity Fund-B(G) |
2.44 |
16.98 |
12.00 |
0.18 |
12.93 |
1,025.61 |
104.45 |
| ICICI Pru US Bluechip Equity Fund(G) |
10.08 |
11.02 |
- |
0.11 |
11.82 |
77.06 |
144.51 |
| Franklin Asian Equity Fund(G) |
12.06 |
7.81 |
11.48 |
-0.01 |
12.81 |
460.87 |
106.54 |
| GS Hang Seng BeES |
-1.55 |
6.79 |
14.38 |
0.01 |
17.84 |
54.85 |
5.79 |
| Birla SL CEF-Global Agri-Reg(G) |
-1.33 |
6.25 |
8.90 |
-0.02 |
12.29 |
1.01 |
8.45 |
| Birla SL Intl. Equity Fund-A(G) |
-7.27 |
2.60 |
13.28 |
-0.10 |
11.21 |
274.22 |
54.77 |
| ICICI Pru Global Stable Equity Fund(G) |
11.17 |
- |
- |
0.13 |
8.12 |
82.71 |
96.07 |
| Kotak US Equity Fund(G) |
7.09 |
- |
- |
0.04 |
11.01 |
11.95 |
5.19 |
| Reliance US Equity Opp Fund(G) |
8.65 |
- |
- |
0.01 |
13.42 |
13.78 |
14.42 |
| Sundaram World Brand Fund-Sr III-Reg(G) |
7.98 |
- |
- |
0.00 |
12.07 |
29.00 |
20.75 |
| Sundaram World Brand Fund-Sr II-Reg(G) |
8.02 |
- |
- |
-0.02 |
12.16 |
40.00 |
30.37 |
| Sundaram World Brand Fund-Sr I-Reg(G) |
7.97 |
- |
- |
-0.03 |
12.17 |
45.00 |
28.21 |
| Reliance Japan Equity Fund-(G) |
-7.36 |
- |
- |
-0.11 |
13.81 |
23.14 |
26.74 |
| Invesco India Global Equity Income Fund(G) |
-4.12 |
- |
- |
-0.14 |
11.06 |
26.15 |
9.62 |
| JPMorgan Emerging Markets Opp Eq. Offshore Fund-Reg(G) |
5.95 |
- |
- |
-0.21 |
17.38 |
7.97 |
3.31 |
| Franklin India Feeder - Franklin European Growth Fund(G) |
-4.10 |
- |
- |
-0.28 |
13.95 |
69.56 |
34.22 |
| Category Average of Global Funds |
3.48 |
8.58 |
12.01 |
-0.03 |
12.75 |
- |
- |
| Category Average of Diversified Equity Funds |
2.57 |
26.83 |
15.59 |
0.25 |
17.18 |
- |
- |
| S&P BSE 200 |
1.48 |
18.40 |
11.40 |
0.16 |
15.87 |
- |
- |
Data as on: August 08, 2016
Note: Risk is measured by Standard Deviation and **Risk-Adjusted Return is measured by Sharpe Ratio. They are calculated over 3-Yr period assuming a risk-free rate of 7.38% p.a.
(Source ACE MF, PersonalFN Research)
Thus, the Assets Under Management (AUM) of these offshore funds have dropped considerably since inception – especially funds focusing on investing in the Eurozone and Japan, due to subdued macroeconomic variables.
The increased volatility in global markets and uncertainty (economic and political) is making investors cagey. Since the last few years the fate of global equity markets has been linked to conditions in the Europe, China, Japan and the U.S. Hence, funds concentrating on these specific economies are exposed to high risk.
The grass always looks greener on the other side of the fence but beware of the patches of hay.
While offshore / global funds provide geographical diversification , they aren't meant for the faint-hearted given the turbulence on the way to wealth creation. Also, many a times the returns earned in countries with complex tax regime are swiped away and the realized return is very nominal.
As an investor, you must primarily check whether your investment portfolio is astutely diversified domestically. Given that India is the fastest growing Asian economy at present (with a 7.6% GDP growth rate clocked in the previous fiscal), and has the potential to achieve the 8.0% mark in the current fiscal year, there are reasons to look inwards. In fact, even foreign investors are fact exuding confidence in the India post reforms. The easy money monetary policy adopted by the central banks is also a supportive factor.
But don't speculate or trade on the happenings of event; it can be hazardous to your wealth and health. Consider domestic mutual fund schemes, and if you're looking at exploring opportunities sectors and market capitalisations, opportunities style funds can be the answer.
At PersonalFN, we are big votaries of diversification, but this must not be aimless. You must first ensure your "India portfolio" is well-diversified consisting of well-managed funds with established track records and investment processes. Only then you may invest in global funds. Put simply, global funds must not be considered as a stand-alone investment. Invest for the long-term (with at least a 5 year investment horizon) in a staggered manner, keeping in mind your financial goals and risk appetite. PersonalFN believes that your investment discipline and asset allocation would decide your success in investing
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