How to diversify your Indian portfolio with global themes?

Global thematic investing, a combination, provides investors with a unique opportunity to diversify their portfolio by investing in highly focused themes with a global perspective.

Indian Mutual Funds, international schemes, global markets, thematic investing, diversification
Many Indian Mutual Funds offer access to interesting opportunities that lie at the intersection of thematic and international investing.

By Nirav Karkera

By investing in international markets, investors can access cross-border opportunities and diversify risks beyond domestic assets. Thematic investing, on the other hand, allows investors to focus on specific segments that are poised for growth and innovation, unrestrained by geographic boundaries. Global thematic investing, a combination, provides investors with a unique opportunity to diversify their portfolio by investing in highly focused themes with a global perspective.

Many Indian Mutual Funds offer access to interesting opportunities that lie at the intersection of thematic and international investing. These funds invest in companies that operate in a specific sector or theme, such as renewable energy, robotics, or healthcare, that are likely to benefit from long-term growth trends. Investing in global thematic funds can provide a hedge against inflation or other economic uncertainties, as some themes are likely to thrive regardless of market conditions.

Here are a couple of interesting yet underrated global thematic funds offered by Indian mutual funds.

Mirae Asset Global Investments Global X Artificial Intelligence & Technology ETF Fund of Fund

Ride the Biggest Wave in Technology

India’s interest in capital markets is rapidly increasing, while the world’s fascination with Open AI’s ChatGPT continues to grow. Thematic investing in artificial intelligence has become an attractive intersection of these developments. India is making progress in this field, but lags most global counterparts that have already established themselves as dominant players in the AI space.

To help Indian investors access global entities that are leading the big data, machine learning, and artificial intelligence race, Mirae Asset Global Investments has launched the Global X Artificial Intelligence & Technology ETF Fund of Fund. This fund invests in the Global X Artificial Intelligence & Technology ETF (AIQ), which holds two-thirds of its assets in U.S. corporations, followed by Chinese and German companies comprising 8.5% and 4% of the portfolio, respectively.

Also Read: What changes for investors in international funds from April

The fund provides geographic and currency diversification, with the majority of the portfolio consisting of the largest corporations developing and using AI in their own products, as well as those offering AI as a service to customers. The remaining portfolio includes companies involved in manufacturing hardware required for AI applications and those engaged in the development of quantum computing technology. With a total of 85 stocks, the ETF is well diversified.

The portfolio is effectively managed through semi-annual rebalancing and annual reconstitution schedules, ensuring that it stays true to its mandate while maintaining efficiency with controlled portfolio turnover. This fund is a great option for Indian investors looking to invest in the global AI theme. Most upside in the segment lies ahead of us.

Invesco India – Invesco Global Consumer Trends Fund of Fund

Play the Great Global Consumption Story

As global inflation reaches its peak, corporations and consumers are focusing on cost-efficiency and cutting back on discretionary spending. However, the world seems poised for a fuller recovery from a consumerism standpoint. Certain geographical and sectoral pockets present strong investment opportunities, with developing economies like China and India better positioned for recovery than advanced economies like the U.S. and Europe.

Sectors such as gaming, entertainment, and real estate are also well-positioned, while cyclical sectors like retail, textiles, and apparel may struggle with rising input costs and lower discretionary spending.

The Invesco India – Invesco Global Consumer Trends Fund of Fund offers Indian investors the opportunity to invest in select themes within the global consumption narrative. This fund invests in the Invesco Global Consumer Trends Fund, which is overweight in sectors such as entertainment, interactive media and services, and REITs when compared to the MSCI World Consumer Discretionary Index (Net Total Return).

Conversely, it is underweight in specialty retail and automobiles. The fund has a diversified portfolio with 65 to 85 holdings at any point in time, with over 70% of exposure to U.S.-based corporations. Chinese and Japanese corporations comprise 10% and 7% of the fund, respectively, making it heavily tilted towards the USD from a currency diversification standpoint.

The fund adheres to Invesco’s proprietary ESG screening process as part of its standard risk management framework. Consumption is expected to take off globally soon, with certain geographies and sectoral pockets benefiting before others. This fund provides an effective means of accessing such exposure for investors seeking these opportunities.

Also Read – How to invest in US stock market from India: All that you need to know about process, rules

DSP World Energy Fund

Betting on a Greener Future

As global manufacturing and consumption continue to grow, the demand for energy is expected to soar. However, with limited non-renewable energy sources and growing concerns about energy bills, economies and households are increasingly looking for sustainable energy solutions. The need for reliable and developed renewable energy sources has never been more urgent, and the world has made significant progress on this agenda. Hydrocarbon-based energy is expected to be replaced by cleaner and greener sources such as solar, wind, and green hydrogen. Governments and organizations worldwide are committed to reducing carbon footprint and supporting sustainable energy development in various ways. Participants leading this shift are investing significant capital and driving change at an intense pace.

The DSP World Energy Fund offers a unique investment opportunity for those looking to capitalize on this trend. The fund can invest in BlackRock Global Funds – World Energy Fund (BGF – WEF) and BlackRock Global Funds – Sustainable Energy Fund (BGF – SEF).

However, the fund is currently invested only in the latter. The BGF-SE Fund is an actively managed fund that invests at least 70% in equity shares of corporations engaged in alternative energy and energy technologies. This new energy fund does not invest in coal, oil and gas, or consumables. The fund is well-diversified, with a little over 87% invested in large-cap companies with over $10 billion in market capitalization at the time of investment.

Unlike most other thematic funds with a heavy US orientation, this fund has less than 40% exposure to US-based corporations, with 10% exposure each towards companies incorporated in Germany and France. Compared to the benchmark MSCI All Country World Index, the fund is heavily invested in sectors of clean power, automotive and sustainable mobility, and industrial efficiency. The fund offers a strong thematic diversification proposition for Indian investors seeking to invest in the clean energy theme globally.

Global thematic funds can be an essential part of an investor’s portfolio, either as a satellite holding or even as a core investment if it aligns with their financial goals. However, it’s important to acknowledge that such investing comes with risks, as with any combination of thematic and global investing. Therefore, it’s advisable to approach such investments with a long-term horizon in mind. One must also ensure it aligns with the risk and investment profile.

International funds accept and restrict acceptance of investments to align with prevailing regulations. These regulations pertain to international funds as a category and applies limits at a fund house and overall industry-level. It helps to check if the fund of choice is accepting fresh investments while planning for allocation.

(Author is Head of Research at Fisdom )

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First published on: 28-04-2023 at 11:18 IST