Investing Trends: Why Advisors Want Investors to Diversify a Portfolio with Global Equities

“Global Investing” is simply investing in markets outside of India. The main objective of investing in the foreign market is twofold:
  1. To diversify an investor’s portfolio so that he is not fully exposed to the political, economic or monetary risk of his country of origin; and
  2. Invest in opportunities that may not exist in national markets

The first part, diversification, is easy to understand. Creating a portfolio of all domestic investments is akin to keeping all your eggs in one basket. Global Investing helps balance risk and reward in your investor’s portfolio.

The second part is also understood intuitively. We cannot assume that all the best investment opportunities are available in our own country. There are so many companies and brands that we all know, whether it’s Apple, Microsoft or Samsung, but we don’t have the opportunity to invest in them in the domestic market. Thus, global investment opens up a plethora of opportunities in the field of technology and innovation.

Optimal allocation

In any other investment, there are certain risks associated with global investing and a degree of understanding is required to ensure that they fit well into an investing client’s overall portfolio. With the right balance and understanding, one can create a well-diversified portfolio across different asset classes (including global investments) to optimize the portfolio. Advisors recommend investing 10-15% of an investor’s overall portfolio in foreign markets for a balanced approach.

Look beyond

Two areas that global investments need to access the right opportunity are in the area of ​​technology and innovation. Selective fintech providers are now helping to identify some of these opportunities and have created investment baskets that offer investors an intuitive way to expose themselves to “the future”. These opportunities provide access to trends that are structural in nature and are expected to play out over decades and market cycles.

Topics like Machine Learning, Autonomous Vehicles, 3D Printing, Robotics, E-Commerce, Energy Storage, Blockchain Technology, etc. should be part of future trends. Investors’ portfolio exposure to these trends in India’s domestic market is virtually non-existent.

Examples of Indian investor portfolios designed to exploit global investment opportunities

Disruptive Innovation Portfolio (DIP)

Invest in a basket of stocks that have enabled a new product or service that could potentially change the way the world works. This portfolio aims for thematic multi-cap exposure to innovation in all sectors of the American markets.

Megatrends Portfolio (MT)

Evidence of megatrends is everywhere, from robotics to genomics to clean energy. Choosing which company will become the leader of a theme can be difficult – which company will come up with the next life-changing medical breakthrough or the best self-driving vehicle?

Our portfolio, for example, contains a range of ETFs which in turn hold a range of companies positioned to benefit from a trend which can be more effective than trying to pick individual winners.

Silicon Valley Portfolio

This portfolio invests primarily in US-based tech giants. The portfolio seeks to track US-traded stocks in the technology sector and select technology-related companies in the communication services and consumer discretionary sectors.

Debunking Global Investing Myths

1: Global Investment is for High Net Worth Individuals (HNI):
While it is true that access to it was limited to HNIs only, offshore investment is now accessible to everyone. Investment in any of these themes can be made with an initial investment of a minimum of $1,000 and subsequent top-ups can be made with a minimum investment of $250 or more.

2: Global investing is complex and expensive:
The entire investment and monitoring process has been simplified. Execution is seamless and digital, and consolidation of all investments, including domestic investor mutual funds, allows for efficient tracking. The expense ratio of these funds ranges from 1.5% to 2.5% and is consistent with that of other equity funds and funds of funds.

3: Do brokers execute trades securely?
The chosen baskets are intended for US markets only and all trade executions are performed by a US broker, which is a regulated entity. Additionally, the US brokerage ecosystem recommends that every investor account has insurance. Investors should ensure that their brokerage partner is a member of the Securities Investor Protection Corporation (“SIPC”) which currently protects the securities and cash in your account up to $500,000, of which $250,000 may be cash .

by, Rajan Pathak, MD and Co-Founder, Fintso