One of the ways to hedge your portfolio risk is through diversification. To do so, you start owning stocks from different sectors and across market capitalization. Still, your portfolio is exposed to the vagaries of the economy. Therefore, a better way to manage your portfolio is to diversify across economies. “I believe that every equity investor should allocate some portion of their equity asset allocation to invest in global businesses. The international diversification helps protect the investor’s equity allocation from country-specific events that might affect investments in the Indian market,” says Rajeev Thakkar, CIO, PPFAS Mutual Fund.
And, what could be a better destination than the world’s largest economy – the US? The US is home to some of the biggest global corporations representing companies across traditional as well as new-age technological advanced structures.
US stock market is buzzing with trillion of dollars of market capitalization with global companies and not just out of US, listed on their three major stock market indices – Nasdaq Composite, Dow Jones, S&P 500. Some of the big global brands that have transformed the life of a common man have their operations run from the US. “India is around 3% of global Market Cap & there are a variety of good businesses listed outside of India. Some businesses are very unique and are not listed in our Indian stock markets, for example, companies like Amazon, Google, Apple, Visa etc are one-of-a-kind businesses that are only listed outside of India. They are highly profitable & make money by selling across the world,” says Thakkar.
Also, if you are wary of buying stocks of high valuations, owning the parent companies of the Indian subsidiaries could be a better option. “Another reason to invest globally is to get the benefit of lower valuations of some of the iconic consumer businesses which otherwise may be trading at very expensive valuations in our domestic market. The global parent companies can give a far broader global coverage of products, revenue & cash flows which may not be available to the Indian listed subsidiary,” adds Thakkar.