As per ICICI Prudential AMC, there is a negative correlation between Developed Markets (US) vs Emerging Markets economic activity, providing an opportunity to diversify the portfolio
If you want to invest in international markets through a basket of global ETFs and funds, there is now an investment offering. ICICI Prudential AMC has launched ICICI Prudential Global Advantage Fund. The new fund offering (NFO) period started from September 16 and will close on September 20. Such a product can come handy because international markets and domestic markets do not always move in the same direction. Thus, the lower-cost international fund of funds route can diversify risk better, at least on paper. Let us read more on this.
As per ICICI Prudential AMC, there is a negative correlation between Developed Markets (US) vs Emerging Markets economic activity, providing an opportunity to diversify the portfolio. There is also a negative correlation between Developed Markets (US) vs Emerging Markets performance, providing another opportunity to diversify the portfolio.
A negative correlation is a relationship between two variables such that as the value of one variable rises, the other falls. If we use this for US markets and Indian markets, this could mean when Indian markets fall, US markets rise.
Even if you agree that there is a case for leveraging negative correlation between two markets, there are some key challenges. One, who will decide the right allocation to schemes with exposure in various international markets. Two, who or how will timely re-balancing happen based on the global view. Three, re-allocation may have taxation implications, which can diminish returns.
In this backdrop, ICICI Prudential Global Advantage Fund is being marketed as a solution for the above challenges. The product does address some challenges. First of all, it is a Fund of Funds (FoF) scheme. This means it will invest in schemes/ETFs which predominantly invests in international markets. Thus, it will invest in readily available portfolios. Two, the re-balancing of allocation will be based on country-specific view. This will be done by the fund manager.
Below is the indicative asset allocation.
A good question to ask is what makes ICICI Prudential AMC an expert in global equities. One, the fund-house has been managing Rs 300 crore ICICI Prudential US Bluechip Equity Fund. Two, ICICI Prudential AMC has foreign equity eexposure in select schemes and this leads to constant monitoring of global markets. Three, ICICI Pru AC provides non-binding investment advisory services to a few offshore funds.
The ICICI Global Advantage Fund will be managed by CIO Sankaran Naren and Dharmesh Kakkad.
Scheme name – ICICI Prudential Global Advantage Fund
Objective of the scheme – ICICI Prudential Global Advantage Fund is an FoF i.e. Fund of Funds scheme. Its primary objective is to generate returns by investing in units of one or more mutual fund schemes / ETFs (managed by ICICI Prudential Mutual Fund or any other fund house) which predominantly invest in international markets.
Scheme type – Open-ended
Benchmark : S&P Global 1200 Index (80%) + S&P BSE Sensex (20%)
New fund launch date – 16-Sep-2019
New fund offer closure date – 20-Sep-2019
Exit load – Upto 12 months from allotment: 1% of applicable NAV
Minimum subscription amount – Rs 5,000
Do not confuse this fund with ICICI Prudential Global Stable Equity Fund, which is a simple fund of fund that invests in Nordea Global Stable Equity Fund.
ICICI Prudential Global Advantage Fund is for long term wealth creation. As an open-ended fund of funds scheme predominantly investing in mutual fund schemes / ETFs that invest in international markets, it is a niche offering. It is tax-friendly in terms of re-balancing because there will be no tax on capital gains for this internal transaction.
However, a Fund of Funds incurs extra cost due to the cost of the underlying funds. Also, this fund will be taxed like debt funds i.e. short-term capital gain tax according to the income tax slab of the investor if fund units sold before 36 months and if the units are sold after 36 months long-term capital gain tax of 20% with indexation.
Disclaimer: Views expressed here in this article are for general information and reading purpose only. They do not constitute any guidelines or recommendations on any course of action to be followed by the reader. The views are not meant to serve as a professional guide/investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument.
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