MF Tracker: After a strong 7 year run, can this international fund maintain momentum?

Motilal Oswal Nasdaq 100 FOF, an international fund, offered the highest return in the last seven years among all equity mutual funds excluding equity oriented mutual funds, an analysis by ETMutualFunds showed.

Launched on November 29, 2018 the fund posted a return of 26.54% in the last seven years among 288 equity funds who have completed seven years of existence in the industry. This international fund is not rated by Value Research and Morningstar both. Note, Nasdaq 100 has gone up 19.44% in the last seven years.

Based on the trailing return parameter, the fund has managed to outperform its category average across all horizons.The data for the benchmark was not available for comparison.

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In the last three months, the fund gave a return of 21.60% compared to a category average of 6.70%. In the last six months, the fund offered a return of 21.06% against a category average of 15.52%. The fund posted a return of 72.11% in the last one year against a category average of 50.35%.

In the last five years, the fund posted a gain of 21.89% whereas in the last three years, it gave 39.16%. The category average in the last five years was 10.41% whereas in the last three years was 22.93%. Since its inception, the fund has offered a CAGR of 27.11%.

Since the calendar year 2018, the fund has offered negative returns in 2018 and 2022. As the fund was launched in November 2018, so the fund lost 5.05% in CY2018 whereas in CY2022, the fund went down 26.20%.

What fund house say on performance

“Performance has been propelled by the dominant weightage of mega-cap US technology giants which have witnessed exceptional earnings growth. The AI and semiconductor boom has particularly boosted Nvidia and related holdings. A weakening rupee against the dollar has further amplified returns for Indian investors, adding a favourable currency tailwind to already strong underlying index gains,” said Chetan Kukreja, Chief of Research - Passive Funds, Motilal Oswal Mutual Fund.

How an expert decode the performance

Subhendu Harichandan, Executive Director, Anand Rathi Wealth Limited shared with ETMutualFunds that the recent performance of the Nasdaq 100 has largely been driven by a sharp rally in technology stocks in the US, which was supported by the rapid adoption of AI and its impact on corporate earnings. While this index has delivered strong returns over the past year, it is important to understand that this is a sectoral index and such themes tend to perform in cycles.

Harichandan said timing entry and exit in sector specific opportunities is inherently difficult for investors and for investors, a more balanced approach through diversified equity exposure in domestic categories remains a more reliable way to participate in long term wealth creation.

According to a product presentation, Motilal Oswal NASDAQ 100 ETF and FoF offers investors an opportunity to invest in global technology companies that are part of NASDAQ 100 Index. It aims to earn index returns subject to tracking error. Motilal Oswal NASDAQ 100 FoF can be useful for investors with no demat account.

The presentation further highlighted that historically, the NASDAQ 100 Index had relatively lower correlation with Indian equity indices, thereby offering diversification opportunities.

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How much exposure to US equities or Nasdaq or international funds?

Harichandan said that focusing on domestic investment opportunities is more sensible for investors, as Indian markets are easier to track and understand whereas the international markets, particularly ones like the Nasdaq 100, are influenced by multiple external factors that may not be easily tracked by retail investors.

He further said that increasing allocation purely after a phase of strong performance reflects recency bias rather than disciplined investing decision. Hence, investors should stick to their strategy of 80% equity exposure through diversified equity categories with 50-55% in large caps 20-25% in mid caps and rest in small caps.

“Even for those who wish to explore global exposure, it should remain limited to 5 to 10%. The Indian equity market has gone through both time and price corrections and valuations appear more reasonable today, supported by strong earnings and fundamentals,” Harichandan also said.

ETMutualFunds analysed the other key ratios of the fund in a three year period. Based on the last three years, the scheme has offered a Treynor ratio of 2.72 and an alpha of 0.88. The sortino ratio of the scheme was recorded at 0.84.

The return due to net selectivity was recorded at 0.17 and return due to improper diversification was recorded at 0.71 in the last three years.

The NASDAQ-100 Index includes 100 of the largest non-financial companies listed on The Nasdaq Stock Market, based on market capitalization. While the Nasdaq-100 is home to some of the most well-known names in technology— including Apple, Microsoft, Alphabet, Intel, and Facebook—the index also includes category-defining companies on the forefront of innovation in other key industries such as Amgen, Starbucks, and Tesla.

It is dollar hedge for Indian investors and has a very low correlation with the Indian equity market, according to a product presentation.

The presentation further said that historically NASDAQ 100 TR Index (in INR) noted better returns over NASDAQ 100 TR Index (in USD), due to INR depreciation and due to recovery post recent crash due to Covid-19 Pandemic, the current valuation multiples are above historical averages.

How do currency movements impact such international funds?

Harichandan said that currency movements can meaningfully influence returns from international investments, often acting as a double edged factor. Historically, a gradual depreciation in the Indian rupee has supported returns of international funds.

He further said that recent movements in rupee indicate that it has already seen a sharper depreciation than its long term trend, and now some moderation is possible. Therefore, making investment decisions based solely on currency expectations can be unreliable and investors should focus on underlying fundamentals rather than short term currency movements in the current environment.

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Others in the international basket

Apart from Motilal Oswal Nasdaq 100 FoF, there are 26 international funds that have completed seven years of existence in the market. After this Nasdaq 100 FoF, DSP World Mining Overseas Equity Omni FoF and DSP US Specific Equity Omni FoF gave 21.34% and 19.03% respectively.

HSBC Brazil Fund was the last one in the list. The fund offered a return of 4.85% in the last seven years.

Way ahead for such funds

Harichandan said that some degree of consolidation or moderation in the near term would not be surprising after a strong phase of performance, as sectors tend to move in cycles and over the longer term, the evolution of artificial intelligence will decide to shape outcomes and overall performance.

Rather than predicting the sector performance and taking concentrated bets on a specific sector or geography, investors should stay aligned with their long term investment strategy and stay invested in diversified equity mutual fund categories such as multi cap and flexi cap funds, which offer balanced exposure in sectors and help to ride smoothly across market cycles, he further said.

One should always consider risk appetite, investment horizon, and goals before making any investment decisions.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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