{"id":5488,"date":"2014-06-14T11:33:05","date_gmt":"2014-06-14T06:03:05","guid":{"rendered":"https:\/\/blog.fundsindia.com\/blog\/?p=5488"},"modified":"2014-12-16T14:58:36","modified_gmt":"2014-12-16T09:28:36","slug":"should-you-hold-us-focused-funds","status":"publish","type":"post","link":"https:\/\/www.fundsindia.com\/blog\/mf-research\/mutual-funds\/should-you-hold-us-focused-funds\/5488","title":{"rendered":"Should you hold US-focused funds?"},"content":{"rendered":"

The high returns delivered by US-focused funds both in 2012 and 2013 may have prompted many of you to buy these funds. We now have quite a few investors asking whether they should exit these funds as the returns have been miniscule in the last 6 months and also negative in the last 3 months.<\/span><\/p>\n

We have these questions asked to us on US-focused funds:<\/p>\n

    \n
  1. Why did the funds not perform?<\/li>\n
  2. Should I hold the fund? \/Should I invest in US-focused funds now?<\/li>\n
  3. What are the prospects for US-based funds?<\/li>\n<\/ol>\n

    Given below are what we think are the answers to these questions.<\/p>\n

    Why did the funds not perform?<\/b><\/p>\n

    First the performance of US equity markets, though not top notch in \u00a02014, the way it is in India, has been decent in dollar terms. In the last 6 months for instance, a broad-based US index such as the Russell 3000 delivered about 8.5% in dollar terms. Then why should your fund returns look lower? Because the rupee appreciation dented the returns.<\/p>\n\"usa\"<\/a>\n

    To give a perspective, the rupee appreciated over 13% against the dollar from its peak (Rs 67.9) at the beginning of September till date. Over the same period, the Russell 3000 index or the S&P 500 rallied about 16-17 percent.<\/p>\n

    The rupee\u2019s appreciation against the dollar means that you have lower returns in hand as every dollar of profit fetches you lower rupee value. In other words, currency risk factor played out negatively for you; exactly the reverse of what happened in 2013, when these funds gained from rupee depreciation.<\/p>\n

    Should I hold US funds\/should I buy them?<\/b><\/p>\n

    Our response to this is simple: you should, if you bought or are buying the fund with a view to diversify and you have the same time frame as any other equity fund<\/a>. If you had bought these funds in your quest to chase returns, then Indian markets would possibly deliver higher returns than the US over the long term.<\/p>\n

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    Just ask yourself if you would buy debt funds because they can deliver higher returns than equities? No. You hold them to provide a hedge when equities fall and to diversify into other asset classes. International funds<\/a> have to be treated in the same way.<\/p>\n

    Markets such as US and for that matter Europe have relatively lower correlation with the Indian markets. That means, the have better chances of delivering returns when Indian markets are down. This was also proved in recent years. Yes, over longer time frame of 5,10 years or more, developing markets such as India have shown to deliver superior returns.<\/p>\n

    Just keep in mind few simple rules before you choose an international fund:<\/p>\n