How Indian investors can invest in foreign equities

The Calm Investor | How to invest in foreign stocks

Why Indian investors should (also) look overseas

Pop quiz: What is notable about these names?

  1. ICBC
  2. China Construction Bank
  3. Agricultural Bank of China
  4. Bank of China
  5. Ping An Insurance Group

No points for saying they are all Chinese companies. Here is another set of names as a clue:

  1. JP Morgan Chase
  2. Berkshire Hathaway
  3. Bank of America
  4. Wells Fargo
  5. Apple

These are more recognisable American companies. What could they have in common with the first set of companies?

More than might be intuitive: The 10 companies mentioned above are the top 10 largest publicly-traded companies in the world. In fact, three of the top 5 companies are from the first set; ICBC (#1), China Construction Bank (#2) and Agricultural Bank of China (#5)

Here’s the introductory note by Forbes on their recent feature on the 2,000 largest publicly traded companies in the world

The 16th annual Forbes Global 2000 list includes publicly-traded companies from 60 countries. Collectively, the companies on this list account for $39.1 trillion in sales, $3.2 trillion in profit, $189 trillion in assets and $56.8 trillion in market value. All metrics are up double-digits year-over-year, with profits up an impressive 28%.

China is home to 291 Global 2000 companies while the U.S. is on top with 560.

58: The number of Indian companies that feature in the Forbes list of the largest 2,000 publicly-traded companies in the world.

Puts into perspective definitions of large, mid and small caps, doesn’t it?

Even if size is not your determinant for investing, how about potential for growth and market domination?

– The companies with access to the largest reserves of natural resources are not Indian.

– The Indian subsidiaries of the large FMCG companies only give Indian investors access to their earnings in India, not to growth in other markets, and more importantly, do not offer ownership of their iconic brands

– Chances that the world leader in electric vehicles will be Maruti Suzuki, Mahindra & Mahindra or Tata Motors, while not insignificant, are slim at best.

– There is currently no Indian company to compete in digital media and advertising with the likes of Alphabet (Google) and Facebook.

Take any sector; pharmaceuticals, e-commerce, financial institutions… Chances are the largest, most innovative companies are not Indian

Two more reasons to consider investing in equities outside India:

1. World markets move broadly together, some less than others. I analysed market correlations in my capitalmind post here

2. India has been amongst the most expensive markets for a while now

Finally, If the core of value investing is to buy exceptional companies at fair prices and many of those exceptional companies are based outside our borders, it follows that global equities should form a part of the Indian investor’s asset allocation.

Investing overseas – the hard way

Most domestic brokerages in India have tie-ups with international brokerages. To directly invest in the Apples and Facebooks of the world, an Indian resident investor needs to enable overseas trading through their domestic brokerage.

Last I checked, investors had to move a certain minimum amount of money to their international brokerage account. Commissions for trading on U.S. stock exchanges are 0.75% or $9 per trade, whichever is higher. Other less liquid markets have similar or higher transaction costs.

At some point, this process will become seamless enough that shares of GOOGL and ASIANPAINT will sit in one consolidated account. Don’t hold your breath.

Investing overseas – International equity mutual funds

The easier alternative is to buy international equity mutual funds offered specifically for Indian investors.

They offer varied investment philosophies. Country-specific, Region-specific like the EU or Asia-Pacific, commodities, agri-businesses, mining stocks, real estate, broader international diversification and a few others.

At last count, I found 37 international equity mutual funds. Many (not all) funds are “feeder” funds, i.e. they put their invested capital into a master fund that’s actively or passively managed based on its investment mandate. The downside to this structure from the mutual fund researcher’s point of view, on mutual fund research sites like valueresearchonline, they only show the underlying master fund and not the actual portfolio.

Example: Invesco India Feeder – Invesco Global Equity Income Fund

The Calm Investor | How to invest in foreign stocks
Source: valueresearchonline.com

The portfolio section of the fund states 98.55% of the fund’s assets are invested in the Invesco India Global Equity Income fund. Accurate but not useful for the investor trying to get a sense of what the fund holds.

This table shows key information on the 37 international equity funds, their strategy, underlying fund, top holdings (as of July 2018) and historical performance.

List of international Equity Funds

The list is organised alphabetically. You can sort by any column (e.g. AUM).

Fund NameObjectiveUnderlyingAUM (Cr)1-yr %5-yr %10-yr %Top 10 Holdings
Aditya Birla Sun Life Commodity Equities Fund - Global Agri Plan35% India, 65% overseas - commodity-focusedNone89.95.7NANutrien Ltd
Monsanto
Archer Daniels Midland
Deere & Co
Bunge
Associated British Foods
Tyson Foods
Kubota Corp
Ingredion Inc
Aditya Birla Sun Life Global Commodities Fundlong-term capital gain from MFs investing in commodity-related securitiesFirst State Global Resources318.33NARio Tinto Ltd
BHP Billiton (Aus)
Vale SA ADR
Chevron Corp
Teck Resources
Glencore PLC
Suncor Energy
Goldcorp Inc
BHP Billiton (UK)
First Quantum Minerals
Aditya Birla Sun Life Global Real Estate Fund65% in ING Global Real Estate Securities Fund, 35% in the units of other similar fundsING Global Real Estate167.6NANASimon Property Group Inc
Alexandria Real Estate Equities Inc
Essex Property Trust Inc
Extra Space Storage Inc
Regency Centers Corp
Equity LifeStyle Properties Inc
Boston Properties Inc
Deutsche Wohnen SE
Terreno Realty Corp
Aditya Birla Sun Life International Equity Fundinternational stocks, diversified geographicallyNone5517.87.67.4Unilever (UK)
Guidewire Software Inc
Grupo Aeroportuario del Pacífico
Salesforce Com.
Union Pacific Corp
Visa Inc
Monsanto
Microsoft
Tencent Holdings
Amerisource Bergen Corp
DHFL Pramerica Euro Equity Fundequities of issuers with headquarter in a member state of the European economic and monetary union(EMU). tries to identify current & future market leaders while putting special emphasis on the companies' structural growth and earnings momentum characteristicsUBI SICAV Euro Equity E Cap49.8NANATotal SA
Sampo OYJ
Prysmian SpA
Siemens AG
Unilever NV
NOKIA
AB Inbev
Deutshe Telecom
SAP SE
Industria de Diseno Textil SA
DHFL Pramerica Global Agribusiness Offshore Fundinvesting predominantly in units of overseas mutual funds, focusing on agriculture and/or would be direct and indirect beneficiaries of the anticipated growth in the agriculture and/or affiliated/allied sectorsDeutsche Invest Global Agribusiness Offshore718.91.9NACF Industries
Nutrien Ltd
FMC Corp
DowduPont Inc
Yara Internaional
Hormel Foods
Kloninklijke DSM NV
Unilever NV
Grubhub Inc
Canadian Pacific Railway
DSP BlackRock Global Allocation Fundinvesting predominantly in units of BlackRock Global Funds - Global Allocation Fund (BGF - GAF)Blackrock Global Allocation Fund317.9NANAApple Inc
Microspft Corp
Facebook
Amazon
Comcast
Alphabet
DowDuPont Inc
Koninklijke Philips NV
Bank of America Corp
Williams Inc
DSP BlackRock US Flexible Equity Fundinvesting predominantly in units of BlackRock Global Funds US Flexible Equity Fundinvesting predominantly in units of BlackRock Global Funds US Flexible Equity Fund18519.513.7NAApple Inc
Microspft Corp
Alphabet
JP Morgan Chase & Co
Pfizer Inc
Cisco Systems Inc
Bank of America Corp
Lowes Companies Inc
United Health Group Inc
Comcast Corp
DSP BlackRock World Agriculture Fundpredominantly invest in units of BlackRock Global Funds - World Agriculture FundBlackRock Global Funds - World Agriculture Fund308.83.9NADeere & Co
Nutrien Ltd
Archer Daniels Midland Co
Tyson Foods Inc
Wilmar International Ltd
Glanbia PLC
Yara International ASA
Bunge Ltd
Hormel Foods Corp
Agco Corp
DSP BlackRock World Energy Fundpredominantly invest in units of BlackRock Global Funds - World Energy Fund and BlackRock Global Funds - New Energy FundBlackRock Global Funds - World Energy Fund (70%)
BlackRock Global Funds - New Energy Fund (25%)
2122.92.7NAEnergy Fund Top 5:
Royal Dutch Shell PLC
Chveron Corp
BP PLC
TOTAL SA
Conocophillips
New Energy Fund Top 5:
Nextera Energy Inc
EDP Renovaveis SA
Schneider Electric
Kingspan Group SA
ENEL SPA
DSP BlackRock World Gold Fundpredominantly invest in units of BlackRock Funds- World Gold FundBlackRock Funds- World Gold Fund214(3.8)1.6(2.3)Newcrest Mining Ltd
Agnico Eagle Mines
Randgold Resources
Newmont Mining Corp
Goldcorp Inc
Franco Nevada Corp
Wheaton Precious Metals Corp
Fresnillo PLC
Northern Star Resources
Kinross Gold Corp
DSP BlackRock World Mining Fundpredominantly invest in units of BlackRock Global Funds - World Mining FundBlackRock Global Funds - World Mining Fund3526.81.9NABHP Billiton PLC
Rio Tinto PLC
Vale SA
Glencore PLC
First Quantum Minerals Ltd
Teck Resources Ltd
Newmont Mining Corp
Randgold Resources Ltd
South32 Ltd
Newcrest Mining Ltd
Edelweiss ASEAN Equity Off-shore Fundinvesting predominantly in JPMorgan Funds - JF ASEAN Equity Fund, an equity fund which invests primarily in companies of countries which are members of the Association of South East Asian Nations (ASEAN)JPMorgan Funds - JF ASEAN Equity Fund488.73.8NADBS Group Holdings Ltd
United Overseas Bank
Oversea-Chinese Banking Corp
Bank Central Asia
CP All
Public Bank
Singapore Telecommunications
Bank Mandiri
Keppel
Bank Rakyat Indonesia
Edelweiss Emerging Markets Opportunities Equity Offshore Fundinvesting predominantly in the JPMorgan Funds - Emerging Markets Opportunities Fund, an equity fund which invests primarily in an aggressively managed portfolio of emerging market companies.JPMorgan Funds - Emerging Markets Opportunities Fund614.6NANATencent
Alibaba Group
China Construction Bank
Samsung Electronics
Ping An Insurance
HDFC
Fubon Financial Holdings
TCS
Edelweiss Europe Dynamic Equity Offshore Fundinvesting predominantly in the JPMorgan Funds - Europe Dynamic Fund, an equity fund which invests primarily in an aggressively managed portfolio of European companies.JPMorgan Funds - Europe Dynamic Fund217.9NANANovartis
Capgemini
Repsol
Allianz
BASF
Koninklijke DSM
VINCI
LVMH
Kering
Rio Tinto
Edelweiss Greater China Equity Off-shore Fundinvesting in JPMorgan Funds - JF Greater China Equity Fund, an equity fund which invests primarily in a diversified portfolio of companies incorporated or which have their registered office located in, or derive the predominant part of their economic activity from, a country in the Greater China regionJPMorgan Funds - JF Greater China Equity Fund4923.713.8NAAlibaba
Tencent
Taiwan Semiconductor
AIA
Ping An Insurance
Galaxy Entertainment
China Merchants Bank
CK Asset
Jiangsu Hengrui Medicine
CSPC Pharmaceutical
Edelweiss US Value Equity Off-shore Fundinvesting predominantly in JPMorgan Funds - US Value Fund, an equity fund which invests primarily in a value style based portfolio of US companiesJPMorgan Funds - US Value Fund4311.5NANABank of America
Wells Fargo
Pfizer
Exxon Mobil
Johnson & Johnson
Citigroup
Capital One
PNC Financial Services
UnitedHealth
T.Rowe Price
Franklin Asian Equity Fundprovide medium to long term capital appreciation through investment in Asian companies/sectors, excluding JapanNone12510.910.39.8Alibaba
Tencent
Taiwan Semiconductor
AIA
Ping An Insurance
Ctrip.com International
AIA
China Construction Bank
HDFC Bank
Naver Corp
Franklin India Feeder - Franklin European Growth Fundinvesting predominantly in units of Franklin European Growth Fund, an overseas equity fund which primarily invests in securities of issuers incorporated or having their principal business in European countries.Franklin European Growth Fund205.7NANAMaisons du Monde SA
Applus Services SA
Capgemini SE
Finecobank Banca Fineco SPA
IMI PLC
Elementis PLC
Prysmian SPA
Hunting PLC
Corticeira Amorim SGPS SA
Ebro Foods SA
Franklin India Feeder Franklin US Opportunities FundThe fund principally invests in small, medium and large capitalisation U.S. companies with strong growth potential across a wide range of sectors.Franklin U.S. Opportunities Fund57429.315.2NAAmazon
Apple
Mastercard
Microsoft
Facebook
Visa
Alphabet
UnitedHealth Group
Raytheon
ServiceNow
HSBC Asia Pacific (Ex Japan) Dividend Yield Fundinvesting predominantly in units of HSBC Global Investment Funds (HGIF) Asia Pacific Ex Japan Equity High Dividend FundHSBC Global Investment Funds (HGIF) Asia Pacific Ex Japan Equity High Dividend Fund813.1NANATencent
Taiwan Semiconductor
BHP Billiton
China Construction Bank
Samsung Electronics
Commonwealth Bank of Australia
Industrial and Comercial Bank of China
DBS Group Holdings
Sands China
BOC Hong Kong Holdings
HSBC Brazil Fundinvesting predominantly in units / shares of HSBC Global Investments Funds (HGIF) Brazil Equity FundHSBC Global Investments Funds (HGIF) Brazil Equity Fund201.6(4.3)NABank Bradesco SA Participating Preferred
Vale SA
Petroleo Brasileiro SA Petrobras
Itausa Investimentos ITAU SA
Telefonica Brasil SA
Suzano Papel E Celulose SA
B3 SA - Brasil Bolsa Balcao
BB Seguridade Participacoes SA
CCR SA
Kroton Educacional SA
HSBC Global Consumer Opportunities Fundinvesting predominantly in units of HSBC Global Investment Funds (HGIF) China Consumer Opportunities FundHSBC Global Investment Funds (HGIF) China Consumer Opportunities Fund418.0NANASamsonite
LVMH
Samsung Electronics
Kao Corp
Unilever PLC
Shimadzu Corp
China Mobile
Varian Medical Systems
Legrand SA
BP PLC
HSBC Global Emerging Markets Fundinvesting predominantly in units of HSBC Global Investment Funds- Global Emerging Markets Equity FundHSBC Global Investment Funds- Global Emerging Markets Equity Fund98.96.93.1Samsung Electronics
Tencent
Alibaba
Taiwan Semiconductor
China Construction Bank
Industrial and Commercial Bank of China
Sberbank of Russia
Infosys
SK Hynix
China Conch Venture Holdings
ICICI Prudential Global Stable Equity Fundto provide adequate returns by investing in the units of overseas mutual fund schemes, which have the mandate to invest globallyNordea 1 - Global Stable Equity Fund907.1NANAKDDI
Oracle
NTT
Alphabet
CVS Health
Lab Corp of America
Cisco Systems
Medtronic
Walgreens Boots Alliance
Zimmer Biomet Holdings
ICICI Prudential US Bluechip Equity Fundinvesting in equity and equity related securities of companies listed on recognized stock exchanges in the USDirect15917.913.8NAAmazon
Alphabet
Merck
Mondelez International
Stericycle
Express Scripts
L Brands
Starbucks Corp
Microchip Technology
The Walt Disney Company
Invesco India Feeder- Invesco Global Equity Income Fundinvesting predominantly in units of Invesco Global Equity Income Fund, an overseas equity fund which invests primarily in equities of companies worldwideInvesco India Global Equity Income613.3NANARoyal Dutch Shell
BP PLC
Chevron
Orange SA
Total SA
Equinor SA
JPMorgan Chase
Nasdaq
Pfizer
Next PLC
Invesco India Feeder- Invesco Pan European Equity Fundinvesting predominantly in units of Invesco Pan European Equity Fund, an overseas equity fund which invests primarily in equity securities of European companies with an emphasis on larger companiesInvesco India Pan European Equity3113.24.7NABP PLC
Invesco STIC Euro Liquidity Agcy
Roche Holding AG
Royal Dutch Shell
Bayer AG
UPM-Kymmene Oyj
Total SA
Eni SpA
Orange SA
Stora Enso Oyj
Kotak Global Emerging Marketinvest a greater proportion of assets in overseas mutual funds investing in globally emerging markets fundsMGF Asian Small Equity Fund3418.73.35.5Vitrocell Co
Magnachip Semiconductor
Xinyi Glass Holdings
BeiGene Ltd
Inari Amerton
Hutchison China Medtech
Yangtze Optical Fibre
Speedcast International
Silergy Corp
Kotak US Equity Fundinvesting in units of fund that invest predominantly in equity and equity-related securities of companies having assets, products or operations in the USPineBridge US Large Cap Research Enhanced Fund518.310.8NAApple
Facebook
Microsoft
Intel Corp
AT&T Inc
UnitedHealth Group
Visa
Boeing
The Home Depot
Abbvie Inc
Kotak World Gold Fundinvesting in companies engaged in the extracting, processing and marketing of gold through an international fundFalcon Gold Equity Fund332.96.10.9Royal Gold Inc
Evolution Mining
Goldcorp Inc
Wheaton Precious Metals
Pan American Silver Group
Newmont Mining Corp
B2Gold Corp
MAG Silver Corp
Fresnillo PLC
Agnico Eagle Mines
Motilal Oswal NASDAQ 100 Exchange Traded FundCorresponds to the performance of NASDAQ 100 Index, subject to tracking errorNone7931.818.921.7Apple
Amazon
Microsoft
Facebook
Alphabet Class C
Alphabet Class A
Intel
Cisco Systems
NVIDIA Corp
Netflix
Principal Global Opportunities Fundbuild a high quality portfolio of equity and equity related instruments listed overseasPGIF Origin Global Smaller Companies Fund1820.49.07.6POSCO Chemtech
Fevertree Drinks
Keyword Studios
China Resources Cement Holdings
TCI Co
Jenoptik AG
Gigabyte Technology
BRP Inc
China Maple Leaf Educational Systems
Open House Co
Reliance ETF Hang Seng BeESReliance ETF Hang Seng BeESNone718.77.611.4HSBC Holdings
Tencent
AIA
China Construction Bank
ICBC
China Mobile
Ping An Insurance
Bank of China
Hong Kong Exchanges & Clearing
CK Hutchison Holdings
Reliance Japan Equity Fundprimarily investing in equity and equity related securities of companies listed on the recognized stock exchanges of JapanNone5011.12.8NANTT Data
Namco Bandai Holdings
Kao Corp
Fast Retailing
Shimano Inc
Nisshin Seifun Group
Tokyo Gas
Nidec Corp
East Japan Railway
Secom
Reliance US Equity Opportunities Fundprimarily investing in equity and equity related securities of companies listed on recognized stock exchanges in the USNone1523.8NANABooking Holdings
Alphabet
Facebook
Iqvia Holdings
Lowe S Companies
O Reilly Automotive
Visa
Amerisource Bergen Corp
Enbridge Inc
Ventas INC
Sundaram Global Advantage Fundinvest a greater proportion of assets in emerging markets fundsFidelity South East Asia
DB Tracker Emerging Markets Asia
Templeton Asian Growth Fund
Morgan Stanley Global Property
DB Tracker Latin America
First State Global Resources
Nevsky Eastern European
2410.65.13.7Tencent
Alibaba
Samsung Electronics
Taiwan Semiconductor
AIA
China Construction Bank
CSL
Westpac Banking
Sunny optical Technology
China Mobile

Picking the right international fund

Just like with domestic funds, picking the right international fund needs thought and a long-term mindset. You need to consider the fund house reputation, investment philosophy, long-term performance, down-side volatility and expense ratios.

The results of the thematic funds in the above list like Agri-Business and Commodities are warning enough. The best bet for investors might just be to buy ETFs of international indices after ensuring the tracking error is low.

Unlike domestic equity funds, international equity funds are treated as Fund of Funds, which means a three-year holding period to qualify as long-term capital gains.

ust like domestic stocks are not safer because they are familiar, foreign stocks are not riskier because they are less familiar.

For small retail investors to invest in foreign companies, mutual funds might just be sahi hai. Like all assets, the price you pay decides the risk involved.


What do you think?