By Atanuu Agarrwal
‘Never bet against America’ has consistently been Warren Buffett’s pithy advice to investors. You can’t really blame him – the US has consistently produced global champions that are the most innovative and disruptive companies across industries.
At a combined (equity and bonds) size of over $100 trillion, the US capital represents over 40% of the global pie. They are unmatched in terms of breadth and depth of their capital markets which are buttressed by a very efficient regulatory regime.
In my view, it is highly prudent for Indian investors to diversify away from pure India risk and have some part of their portfolios invested in the US market.
You can get started by opening a brokerage account that allows you to buy US stocks. There are several options to choose from, including, a major US brokerage firm (Interactive Brokers) that offers direct services, venture-funded companies that offer curated portfolios (Vested and Stockal to name a couple), NSE (NSE IFSC) and BSE (India INX) platforms for buying foreign stocks, and some Indian brokerage firms (like Motilal Oswal) that also have tie-ups with US counterparts.
Any of these routes will require conversion to US dollars and be covered under LRS (Liberalized Remittance Scheme) for individual investors where the maximum is $250,000 a year. Also, under LRS, investors are prohibited from trading derivatives or any margin products.
There are some Indian mutual funds (both active and passive) that offer indirect exposure to the US as well, but they often pause lump-sum investments because they are subject to industry-wide caps. In addition, there are also managed funds that are domiciled overseas that offer exposure to the US market, again under the LRS route. Typically, these funds are targeted toward HNIs since they have high minimum investment thresholds.
In terms of options to invest in, I personally believe that non-professional investors should tread with caution when dealing with individual stocks. The US offers a plethora of options in terms of low-cost passive ETFs that are in my view better options. A frontline ETF tracking a broad index like S&P 500 or the NASDAQ 100 is a good place to start. For instance, State Street’s SPDR S&P 500 ETF Trust (Ticker: SPY) has over $350 billion in AUM and an expense ratio of under 0.1%.
If you like specific sectors, there are several passive ETFs that offer sector-specific exposure as well. You can also consider ETFs investing in disruptive themes like biotech, EVs or seek geographical diversification with ETFs offering exposure to different regions. For example, Blackrock’s iShares MSCI China ETF (Ticker: MCHI) tracks an index with the largest Chinese equities.
The thumb rule should be that the ETFs should generally be issued by large institutions like Blackrock, Vanguard, State Street etc., AUM should be reasonably large and the expense ratios should be low. For passive ETFs, it is rare for expense ratios to be more than 0.75% even for relatively esoteric themes.
(Author is Co-founder, Upside AI)