Domestic equity-oriented MFs vs global themes: Should you diversify to mitigate risks?

Mutual funds investing in domestic equities have outperformed foreign-themed schemes over the last one year, thanks to the overwhelming performance by broader market stocks. Average 1-year returns given by MFs which have exposure in local equities are nearly double at 44% from the average returns of 21% delivered by their overseas-themed funds, according to Ace Equities data analysed by ETMarkets.

The domestic equity-oriented mutual funds are across marketcaps (large, mid and small) and include large & midcap, flexicap, focused, multicap, value contra, ELSS among others. They do not include equity-oriented hybrid funds, thematic and sectoral mutual funds. All these schemes have given double-digit returns over the past 12 months with the midcap MFs ruling the roost. There are 47 active schemes which primarily invest in midcaps while another 28 which invest in smallcap stocks.

The total number of funds with largely domestic equity exposure are 248 versus 61 foreign-themed mutual funds.

In the former case, there are 68 schemes which have given returns of 50% or more with Quant Value Fund-Reg(G) and Quant Mid Cap Fund(G) ending up as the toppers in the chart delivering 80% returns. They are closely followed by ITI Mid Cap Fund-Reg(G), Bandhan Small Cap Fund-Reg(G) and JM Midcap Fund-Reg(G) which have yielded 74%, 73% and 72% returns, respectively in the same period.



There are 79 equity MF schemes which have yielded returns in excess of 40% but lower than 50% during this time viz. Invesco India Midcap Fund(G), Invesco India Flexi Cap Fund-Reg(G), HDFC Multi Cap Fund-Reg(G), HDFC ELSS Tax saver(G) and DSP Equity Opportunities Fund-Reg(G) to name a few.

The number of schemes with returns of 30% or more but less than 40% are 75 while 21 schemes have given returns in excess of 20% but lower than 30%. At 18.43%, Mirae Asset Focused Fund-Reg(G) is the lone fund with returns lower than 20%.




In the foreign-themed category, Mirae Asset NYSE FANG+ETF FoF-Reg(G) stands out among its peers delivering 74% returns in 1-year. The gains have been on the back of multibagger returns by Nvidia Corp (165%) while significant returns between 82% and 65% by Broadcom, Meta Platforms and Netflix.

Forty six funds in this pack managed double-digit returns with next top performers being Mirae Asset S&P 500 Top 50 ETF FoF-Reg(G), Edelweiss US Technology Equity FOF-Reg(G) and Bandhan US Equity FoF-Reg(G) with over 40% returns in each case.




In this 11 schemes gave single-digit returns while four funds returned losses between 0.45% and 8.38%.



Which category to choose?

While India's Nifty has had a superior run in the last one year with 23% gains versus 18% by Dow 30, US along with Chinese markets offer strong opportunities, experts say.

Notwithstanding higher returns by Indian equities, investing in foreign-themed mutual funds can provide valuable diversification, access to global growth, and risk mitigation, Adhil Shetty, CEO, Bankbazaar.com says as he recommends a prudent approach to balance both domestic and international investments.

"By doing so, investors can enjoy the benefits of global diversification without foregoing the strong returns offered by their home market. Regular portfolio reviews and strategic allocation adjustments are key to optimising returns and managing risks," Shetty said.

"If you look at the US market, it has done very well. It has done as well as the Indian market. Some months, the Indian market outperforms the US market, other months the US market outperforms. So, there is no question. There is lots of steam left in the global market, and you are seeing a lot more interest in equities globally, particularly in the US, and of course, that helps India as well," Mark Mobius, Chairman of Mobius Emerging Opportunities Fund had told ETNow.

As a theme, he also sees potential in Chinese technology stocks owing to a growing emphasis by its leadership to improve technology, particularly in semiconductors which in his view was in order to meet the challenge that the US is imposing on them with the restriction on export of software and hardware in the semiconductor area.

Siddharth Srivastava, Head - ETF Product & Fund Manager, Mirae Asset Investment Managers sees valuations in Chinese stocks to be discounted with fundamentals improving. He likes Chinese tech companies and the digital economy sector as a theme.


(Inputs from Surbhi Khanna)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)