Fund Call . ICICI Prudential US Bluechip Equity: A good way to get exposure to US market

For investors looking to diversify beyond Indian stocks, ICICI Prudential US Bluechip Equity is a good choice.

The fund is among the best performers in the category of India-based schemes that invest in global stocks.

It is an open-ended equity fund that invests primarily in large-cap US stocks. The scheme’s annualised return (in rupee terms) since its launch in July 2012 is about 16.5 per cent. As of June 17, it has a rupee return of about 25 per cent over the past year, and annualised returns of about 17 per cent, 13 per cent and 15 per cent over the past three, five and seven years, respectively.

The fund has done better than its benchmark (the US-based S&P 500) over shorter periods of one and three years, though it has somewhat underperformed the benchmark over longer periods.

It has beaten its additional benchmark (Nifty 50 TRI) by a wide margin across time periods.

The scheme’s positive return over the past year is in contrast to the negative returns posted by many domestic funds, highlighting a key benefit of global diversification in an investor’s portfolio. Global markets often do not move in tandem. So, having some exposure to foreign stocks can reduce the volatility in one’s overall portfolio by shielding it from upheavals in a single market, say India.

This may not always be the case though, and sometimes, many global markets rise or fall together. Still, global diversification can help smoothen portfolio returns in the long run.

There are other benefits, too. Some niche opportunities such as cutting-edge technology stocks are available only in global markets. For instance, if an Indian investor wants to bet on the likes of Google and Amazon, she has to shop overseas.

Also, the general weakness of the rupee vis-à-vis major global currencies such as the US dollar can mean higher rupee returns on investments in global stocks, if the forex exposure is unhedged or hedged only partially.

Investment approach

ICICI Prudential US Bluechip Equity invests in stocks with a market capitalisation of at least $4 billion. It invests across sectors, and adopts both top-down and bottom-up approaches for stock selection. A blend of value- and growth-investing strategies is used to pick stocks.

The fund uses the expertise of various international research houses to identify investment opportunities.

As per its mandate, the scheme can allocate 80-100 per cent of its corpus to equities and the rest to fixed-income instruments including cash and equivalents. In line with this, about 94 per cent of its corpus is currently in foreign stocks, with the rest in cash and equivalents.

Diversified portfolio

The fund invests in stocks of companies that are global brands with competitive advantages. It does not invest in stocks listed on the Indian stock exchanges, except ADRs (American depositary receipts) and GDRs (global depository receipts) issued by Indian companies.

With about 40 stocks, the portfolio is well-diversified with a presence across many sectors including software, consumer goods, pharma, healthcare, banks, finance, hardware, retail, aerospace and defence. The largest sector exposure, as of May-end, is to software (about 15 per cent of the corpus) followed by consumer non-durables and pharma (about 10 per cent each).

Well-known stocks in the scheme’s portfolio include Amazon, Pfizer, Facebook, Nike, Merck, Boeing, Salesforce, Kellogg’s, Intel, American Express, Gilead Sciences, Alphabet (Google), Microsoft, Caterpillar, Berkshire Hathaway, 3M and Walt Disney. Many of these have done quite well over the past few years.

Invest through SIPs

Don’t go overboard on your exposure to the fund looking at past returns. Invest only a part of your money (say, 5-10 per cent of your portfolio). Caution is warranted.

The US stock market has had a strong run over the past few years and has also staged a strong recovery from its lows in March, primarily due to the gush of liquidity infused by various central banks including the US Federal Reserve.

Given the ongoing uncertainties and challenges to economic growth due to Covid-19, weakness in the US stock market cannot be ruled out. Also, currency movements are unpredictable.

So, you may be better off investing in the fund regularly through the systematic investment plan (SIP) route rather than in lump sums. This will help you take advantage of market falls, if any, to reduce your overall cost of acquisition.

There could be pain in the short and medium term. Have a long-term horizon of at least five years. Keep expectations tempered.