Core-Satellite Strategy for global equity investments


Increasing appetite for international equity funds, global market performance, strong liquidity, and restrictions on product launches motivate fund houses to launch differentiated international funds.

Financial advisors suggest investors follow core and satellite strategies while making their international portfolios and not just buy products because they are on sale or offer.

The core and satellite strategy suggest investing the core part in index funds or broader markets. An index fund is a portfolio of securities that mimics the composition and performance of the financial market index.

The satellite part should focus on thematic or country-specific bets. Thematic funds are equity mutual funds that invest in a particular theme of stocks like an infrastructure theme will invest in cement, power, and other sectors.

Some of the upcoming NFOs are PGIM India Global Select Real Estate Fund of Fund, Nippon India Taiwan Equity Fund, Invesco Blockchain Fund, Motilal Oswal MSCI EAFE Top 100 Index Fund, and Mirae Asset Hang Seng Tech EFT Fund of Fund.

Financial planners suggest that 20% of the equity allocations should go towards the overseas market, but keep in mind the steep valuations.

While investing in the overseas markets, follow a core and satellite approach and build the allocation gradually over the next 12-18 months. Allocate the core part, 80% of the total funds, in broad-based markets or index funds and the remaining 20% into country-specific or thematic funds.

India is only 3% of the global market capitalization. Hence wealth managers advise diversifying geographically. Diversification will help invest in companies whose services and products are used in India but are not listed here.

Financial planners suggest not to get carried away with the number of New Fund offers (NFOs) around specific themes and countries. Narrow thematic bets and country-specific funds carry risks that are difficult to interpret.

One who wants to allocate funds in equities after the sharp rally and invest in real estate globally can consider PGIM India Global Real Estate Find of Fund as a medium to diversify funds internationally.

Those who want to invest aggressively in country-specific or sectoral new-age themes and have a high-risk appetite can go for Nippon’s Taiwan Fund or Invesco Blockchain Fund.

Fund managers advise allocating 20% of the equity portfolio to broad ETFs (Exchange Traded Funds) or index funds or diversified international funds that invest in broader financial markets, which limits the chances of risks.

For investing in such markets, one can have exposure to Franklin India Feeder US Opportunities Fund, Motilal Oswal NASDAQ 100 EFT, and DSP US Flexible Equity.

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