International funds can help you get exposure to unique or new age or future business models that may not be available in India. Take for example luxury goods, health technology, electric vehicles. While one can avail such services in India, there are not many ways to invest in such businesses in the country. One can find asset classes such as REITs that are not well developed in India. REITs can perform differently than equities in economic situations by helping to further diversify one’s portfolio.
At PGIM India, we offer three Global Funds of Funds (FoFs) – PGIM India Global Equity Opportunities Fund, PGIM India Emerging Markets Equity Fund and PGIM India Global Select Real Estate Securities Fund. Although in the long term these strategies have delivered as expected, to be honest, in the short term these funds have underperformed this calendar year. A major part of the underperformance for the two equity funds came from companies in businesses such as electric vehicles, e-commerce and semiconductors. On the real estate front, listed REITs have seen significant price adjustments with interest rates.
That being said, we remain positive on these themes as they are structural in nature and have a long runway for growth. Electric vehicle adoption may experience growth. Similarly, e-commerce companies are likely to be another growth area driven by growing adoption and Internet services, particularly in emerging markets. Semiconductors, being an integral part of the ongoing digitization, may benefit.
Our global equity funds seek to invest in companies in the early stages of their growth. Growth stocks have historically performed well in rate hike cycles. The last four US Fed rate hike cycles over the past three decades indicate that growth stocks underperformed when rate hikes were first announced and/or initiated. However, once the bullish cycle kicks in and economic data softens1, growth stocks are likely to continue their lead. In addition, earnings growth for growth stocks, represented by the Russell 1000 Growth Index, has continued to strengthen, while the valuation multiple (P/E) has increased.
On the real estate side, listed REITs may overreact to the macro environment. As interest rates continue to rise, highly leveraged buyers may find it difficult to finance transactions that slow real estate M&A activity. On the other hand, higher rates may allow more pricing power for landlords. Inflation has historically been good for real estate and REITs. Many companies continue to post strong top-line growth due to tight housing and pent-up demand.
Similarly, in a recent discussion with my friends about OTT shows, I realized that most of us are watching different content. Each of us was watching content from different origins such as Indian, Korean, Spanish and American with subtitles. All recent technological developments are making diversification easier and contributing to better results – be it entertainment or investment. Hope my two cents helps you make the most of your international investment decisions.
(Disclaimer: The advice, suggestions, opinions and views given by the experts are their own. These do not represent the views of The Economic Times)