By Rahul Bhutoria
The Stoics believed that diversification was a wise strategy for managing one’s affairs. Just as a farmer plants different crops to protect against the risk of crop failure, a wise person should diversify their investments and interests to protect against the vicissitudes of life. By spreading one’s resources and attention across a range of areas, one can reduce the impact of any failure or setback. This can lead to greater resilience, self-sufficiency, and peace of mind, as one is less dependent on any one thing for their well-being.
On these lines, as Indian investors become more sophisticated, they increasingly look beyond domestic markets to diversify their portfolios to Global markets. The easiest way to access global markets is through exchange-traded funds or ETFs.
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Global ETFs offer Indian investors several benefits, including:
Access to a wide range of investments across asset classes – Global markets offer a wide range of ETFs across asset classes such as Equity, Bonds, Precious Metals, and Commodities. For example, to benefit from higher US Interest rates currently, one can look at ETFs investing in US Treasury Bonds.
Exposure to diverse sectors, industries, and themes that are not present in India – There are sectors and themes that don’t have any meaningful representation in Indian markets, like SaaS, CleanTech, or SpaceTech. Global ETFs offer the opportunity to build exposure in a sector at the Global level, which can be a part of tactical asset allocation and can complement the portfolio returns.
Investing in Industry Leaders – Many companies like Apple, Microsoft or Taiwan Semiconductor are listed in the US, but they are truly global companies because most of their revenues come from global markets. At the same time, some companies have a significant presence in India. Still, they are not listed here, so Global ETFs allow the opportunity to have such companies as part of the portfolio.
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Protection against currency depreciation – Over the last many years, INR has depreciated against USD. Since most of these Global ETFs are denominated in USD, investors can protect a part of their portfolio against currency depreciation by investing in these funds. At the same time, currency diversification works wonders for insurance against geopolitical risks.
Taking Country specific exposure – Global ETFs provide another interesting opportunity to build exposure in a specific country to capitalize on attractive valuation or growth potential, which can help generate alpha for the portfolio.
If used with caution and after thorough diligence, Global ETFs can be a powerful tool for Indian investors looking to bring diversification to their portfolios. When selecting global ETFs, investors should take the time to research and understand the underlying assets and the risks associated with each fund. It’s important to note that because of the global nature of these funds, they may be subject to fluctuations in currency exchange rates, geopolitical events, and other macroeconomic factors. However, by diversifying across multiple global ETFs, investors can mitigate these risks and maximize their potential for the long-term growth of their portfolio.
(Author is Director and Founder, Valtrust- A bespoke Multi Family Office)