One of the themes that I’ve had trouble thinking through in the past is if a person living in India should invest in developed equity markets like the US, and if so then by what percentage?
For a long time, I used to think that investing in the NASDAQ or S&P 500 will not be meaningful for Indian investors because although these markets are a lot more stable – the returns over a long period just about match what you get in a fixed deposit in India. Combine the dismal performance that these markets had over the last decade with the great returns that emerging countries have had – and you don’t find many takers for investment in the Nasdaq or any of the German, Canadian, Australian or even South Korean indices.
In fact if you look at the list of the international mutual funds available to Indians – you will find that it is loaded with funds from other emerging countries and thematic investments, but only the MOST N100 – Motilal’s Nasdaq ETF is the one that gives you international exposure to a developed market’s index. I think this should also be one of the best performing funds this year returning 14% year to date.
If you look at the performance of the major global indices this year – you will find that the emerging countries have fallen a lot more than the developed ones, and I think you will find that true for most periods in history.
The economic events that have unfolded this year have influenced my thinking from being in a position where I didn’t see any value in investing in US or Germany to being interested in such investments in a moderate manner if you can access a low cost fund. Unfortunately, most funds right now are fund of funds and that too with high fee and they will do no good for getting exposure to international markets.
But something like a Nasdaq ETF or another instrument that gives exposure to the Canadian or Australian market can be useful to protect from volatility and also participate in the upside when it occurs.