The buzz is growing. Indians can now invest in global markets without much restriction. Asset management companies and portfolio managers are rushing to launch schemes to tap into this potentially large market.
Local arms of global asset managers are gearing up to make available schemes floated by their parents in international markets in India. There will soon be a deluge of products. There will be a lot of hard sell.
So, as is true in any other instance, look before you leap!
At the outset it is pertinent to highlight the fact that, broadly speaking, the overall asset allocation of an individual need not undergo a significant change due to this development.
Stocks are stocks, whether they are listed in Mumbai or in New York. So if your asset allocation indicates you should have about 50 per cent of your assets in stocks, then with this new opportunity, you probably need to invest a part of this in the global markets.
Of course, there could be a change in the overall asset allocation if one were to add an asset like, for example, orange juice (yes, you can invest in orange juice, which incidentally is poised to do well!) which was hitherto not available to us.
But in our view this would not make a significant impact on the overall asset allocation.
Let's take a closer look at equities/stocks as an asset class. As per the MSCI World Index (a global benchmark), the following was the weightage of the various world markets -
| Region | MSCI World weights* |
| North America | 58.9% |
| United Kingdom | 10.6% |
| Eurozone | 13.3% |
| Rest of Europe | 4.5% |
| Japan | 9.5% |
| Non-Japan Asia | 3.2% |
| 100.0% |
MSCI - Morgan Stanley Capital International
India's share in a global portfolio (we fall in the non-Japan Asia category) is about 0.2 per cent! And given that we are 100 per cent in Indian stocks, we are highly overweight!!
This is not to say that we should be 58.9 per cent in American stocks.
Towards the late 1980s, Japan's weightage in this index stood at about 60 per cent. Today it is a paltry 9.5 per cent. In effect if you had invested as per weights then, you would be a lot poorer today.
What one should look at is making investments within the broad allocation as is indicated by global indices such as the MSCI.
However, and this is where you need help from the experts (i.e. mutual funds, portfolio managers), you should go underweight in markets that are unlikely to do well going forward and go overweight in markets that hold better prospects.
Of course, this is easier said than done. But the chances are, given the services of a good fund manager or portfolio manager, that you will come out with a better return as compared to the 'index'.
So, it becomes pertinent to entrust your money to a manager who will track the index, but at the same time will not hesitate to change 'weightage' if there is a need to do so.
What should you do now?
Rather than investing directly in shares, opt for mutual funds and/or portfolio management schemes that will invest in global markets on behalf of their investors.
Avoid going in for global index funds to start with. Like we have seen in India, there are distinct benefits of being invested in diversified equity funds. Even as the index has been flat over the last four-year period, diversified equity funds have turned in very good performances.
Since there is a lot of individual discretion that is exercised in diversified equity funds, be sure that you take utmost care when selecting the fund manager / team you are entrusting your money to. Your investment advisor can assist you here.
Finally, be realistic with your expectations when investing in global funds and invest in line with your overall asset allocation. To start with look at it more from a perspective of diversifying your investments to minimise risks related to concentration in one market and in one currency.
Read more: Go Global with Your Money!
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