As a beginner, if you are looking to invest in the best US stocks, you have to follow almost the same approach that you use to build-up your domestic portfolio. While the stocks from Nifty 50, Nifty Next 50 or even Nifty MidCap 150 form the core of your Indian stock portfolio, there are similar opportunities across the market capitalization and sectors in the US stock market. Diversifying your portfolio between the Indian and the US stock market brings in stability and the resilience to one’s portfolio in the long term.
The large-cap space in the US market is dominated by some of the well-known global players and market capitalization of many of them runs into trillions of dollars. Apple, Microsoft, Google, Amazon, Facebook are some trillion-dollar companies driving the investments in the US stock market.
Most of the big-tech companies are listed on Nasdaq 100, an index that reflects the global interest in the technology and the digital sector. If you are bullish on the sector, stocks in Nasdaq 100 deserve to be part of your global portfolio. Nasdaq 100 comprises stocks across major industry groups, including computer hardware and software, telecommunications, retail trade and biotechnology. However, what it does not include are the stocks of banks and financial companies, including investment companies.
The top 5 stocks of US markets popularly and collectively known as the FAANG stocks – Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX) and Google (GOOG) – are the favorites of global investors.
Investing in the US market becomes important when we talk about allocation to International markets. “The US has been at the forefront of the information and technology revolution in the last 40 years which has produced companies like Facebook, Amazon, Apple, Netflix, Google among others, and popularised the term ‘FAANG’. The US, being a democracy and investor-friendly economy, continues to innovate. It has capital that is being deployed across the world to access consumers and markets,” says Anup Bansal, Chief Investment Officer, Scripbox.
If buying individual stocks is an issue as far as selection is concerned, you can invest in the exchange-traded fund (ETF) that tracks the Nasdaq 100. You can start systematically buying Invesco QQQ, an ETF that gives you access to Nasdaq 100 companies in a single investment.
Outside the tech space is the huge potential with the Financials and other sectors of the US economy. S&P 500 index represents nearly 500 leading corporations across about 11 sectors and covers about 80 per cent of the market capitalisation of US stock exchanges. The top 5 sectors in the S&P 500 are Information Technology, Health Care and Communication Services ,Consumer Discretionary and Financials.
You can take exposure in all S&P 500 stocks in one-go by investing in the ETF that tracks the index. The SPDR S&P 500 ETF (SPY) also known as SPY ETF is the one that you can buy if you want to buy the ETF that tracks the S&P 500 index.
Apart from Nasdaq 100 and S&P 500 indices, the Dow 30 stands as the single best barometers of the US economy. After the recent job data showing promising numbers, if you are bullish on the US economy to bounce back to its pre-covid levels soon, the stocks in Dow 30 should be on your watchlist. Dow Jones Industrial Average (DJI) or the Dow 30 consists of top 30 blue-chip companies that are only based in the US.
And, not just the large-cap and mega cap stocks, the US stock market gives you the access to put your money into some of the small cap stocks with high growth potential and which have the trajectory to move into the big league arena in the time to come.
Russell 2000 is one such index to go for when you wish to invest in the lesser-known small-cap stocks.The volatility in small-cap stocks could be higher than large-cap stocks and hence the risk reward ratio should be considered before investing in them.
Holding a diversified portfolio of US stocks across different sectors helps in the long run. “The FAANGs have definitely contributed to the excellent returns over the last few years. However, it would be wrong to say that these are the only stocks which have given good returns,” says Ashish Ranawade, Head of Products, Emkay Wealth Management.
According to Ranawade, the sectors and segments which have also contributed significantly to the portfolio returns for overseas Investors includes, – Information Technology Companies, Companies focussing on Innovation, Bio tech companies, Select Consumer Companies, Medical Devices and Pharma companies, Select Engineering Companies and Companies focussing on the ESG segment.
But, if you are starting to invest in US stocks, getting informed advice helps. “ Investors should be aware of familiarity bias like with FAANG and other well known stocks, and avoid investing in individual stocks without professional advice. The US market, being more evolved and liquid, has investment opportunities in various sectors, indices and products. Informed investors with the help of prudent advice may consider those options also,” cautions Bansal.
To start investing in US stocks, you need an international brokerage account and a bit of formalities regarding forex exchange. All this can be completed in a jiffy, when you open a foreign trading account with an international brokerage by sitting here in India. Time to route your INR offshore and gain from the global equity exposure without further ado!
Disclaimer: The investing decision in these or any other stock should be taken on your own after carefully evaluating the business and other fundamentals of the company or after consulting one’s financial advisor. It is not a recommendation to buy, hold or sell in any of the stocks. Financial Express Online does not bear any responsibility for their investments decisions.