Looking to invest in US stocks? Check what new-age fintech platforms have to offer

Updated: Jul 22, 2020 11:23 AM

FAANG stocks - Facebook, Amazon, Apple, Netflix and Google – have became the first choice of the select investors using RBI’s Liberalised Remittance Scheme.

 invest in US stocks, fintech platforms, lrs, stocks, fixed income, mutual funds, commodities, REITS, hedge fundsTill recently, the most common option for an Indian investor for global allocation was to invest through Indian mutual funds offering global funds through a feeder route.

By Apoorva H Vora

We are witnessing a growing interest among Indian investors to allocate money in global markets. This may be fuelled by the performance of some of the global markets in the last decade. An appreciating US Dollar has made such returns even more attractive to an investor here.

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Supported by data points, easier access to global products, growing understanding about the global economy and need to diversify beyond the usual, has led to the receptivity of global investing options. Some of the recent Mutual Fund offerings also indicate this growing interest.

Preference in investing style

The passive style of investing has gained acceptance and popularity among investors, particularly when investing globally. Higher cost and lack of significant alpha of active investing have led to this sustained popularity of passive funds.

Historic preference of global investing style

While an average investor in global markets will have a strong preference for passive funds or index, an Indian investor remains an alpha seeker by DNA. Despite the cost disadvantage, Indian investors have often selected the active style of investing.

Changes in preferences of investing styles

Till recently, the most common option for an Indian investor for global allocation was to invest through Indian mutual funds offering global funds through a feeder route. In other words, the investor would invest in an Indian fund that in turn will invest into a global fund (or fund of funds).  This is typically known as a feeder fund.

Typically, such funds would be confined to an underlying fund only – most commonly – a passively managed index global which could be Nasdaq, S&P or likewise.  A handful of the actively managed popular global funds have also been available through the feeder route.

Then came the trend of taking exposure to direct stocks, typically in the US markets. FAANG (Facebook, Amazon, Apple, Netflix and Google) became the first choice of the select investors through specified global broking houses. Using RBI’s Liberalised Remittance Scheme(LRS), investors are required to remit the money to the designated broker outside of India. Naturally, such investments can happen within the limit of LRS provisions.

The new age Fintech platforms

New age Fintech platforms have revolutionized the way investors opt for their global investing allocations.  Operating from various jurisdictions, such platforms allow investors to remit the investment value under RBI’s LRS provisions. Such platforms provide flexibility, ease of operations, access to data, range of options across asset classes, geographies and in some cases – also the currency of choice.  Such platforms also have an option of a managed portfolio or basket of funds. Investors have the flexibility to choose a basket or managed accounts, or just a selection or choice of passive funds as underlying.

The blended style and rationale

The feeder route or individual stocks remain suitable for a typical “buy & hold” strategy of an investor. It is not easy to switch options in such investments. The feeder funds serve the purpose of allocation, but only as part of strategic asset allocation. When an investor takes an independent call on the selection of stocks, funds or any other underlying investments, we would term the style as active management.

A blended style is when an investor actively manages the investment from within a basket of passively-managed funds, including ETFs. By this style, the cost of the underlying is kept under control. Instead of focusing on alpha generation, the focus is on the right allocation and investment objective.

The emergence of blended style

As the historic data points for global markets in general, and US markets, in particular, were encouraging, investors started to commit higher sums for global investing. New Fintech platforms have emerged that allow an investor to invest in global markets, including stocks, fixed income, mutual funds, commodities, REITs, hedge funds, etc.

An investor has access to relevant data points, factsheets, performance snapshots, attribution reports, etc., for underlying investments to make the entire process easy and in DIY mode.  Most often, investors prefer the underlying to be a passively managed fund or an ETF.

With a slightly better understanding of the global economy, larger commitments to global markets, increasing internet and smartphone penetration, and overall comfort in embracing technology, investors started evaluating Fintech platform(s) that would suit their respective investing style. Investors now take calls on specific markets and indices or themes and create a basket of investments. This way, an investor is able to create a multi-asset class and multiple geography portfolios.

The beauty of such a platform is the ability to allocate smaller sums which otherwise may not have been possible even to meet the minimum investment size criteria of some of the products. Such allocations can be altered as and when wanted.

Given the economic disruptions, Covid-19 impact, US elections, the trade war, etc., investors are less comfortable to allocate global money in a fixed pattern. Active management of underlying gives that flexibility to an investor to change allocations depending on the developing scenario in global markets.

Market pundits often quote “opinions change when facts change”. This style of managing global allocation becomes a perfect recipe, albeit only for those investors who prefer to remain active in allocations. For larger and evolved investors, this strategy could be applied for a smaller allocation for managing the tactical allocation part of overall portfolio management.

Conclusion

This blended style of active management of passive options, coupled with emerging Fintech platforms, is surely slated to change the way an investor looks at global investing allocations.

(The author is Founder and CEO, FinolutionsWealthcare LLP)

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