Last Updated on July 28, 2021 at 8:02 am
In this article, we compare the performance of international equity mutual funds (based in India and available for the retail Indian investor) with the S&P 500 Total Return in INR over the last one, two and three years as of July 23rd 2021.
If we exclude the international index funds tracking the Nasdaq 100 and S& P 500 (we shall discuss their tracking errors in the next article), we have a total of 35 funds that are at least one year old and 33 funds which are at least 2/3 years old.
- Only 5 out of 35 funds outperformed the S&P 500 TR INR over the last year
- Only 8 out of 33 funds outperformed the S&P 500 TR INR over the last two years
- Only 5 out of 33 funds outperformed the S&P 500 TR INR over the last three years
However, some funds in this list are sector-specific (eg. DSP World Mining Fund, ABSL Agri Fund) or geography-specific (eg. funds investing in Euro, China, Brazil, emerging economies etc) and it would not be fair to compare them to the S&P 500.
If we eliminate them, we have a total of 19 funds that are at least one year old and 17 funds that are at least 2/3 years old.
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- Only 3 out of 19 funds outperformed the S&P 500 TR INR over the last year
- Only 6 out of 17 funds outperformed the S&P 500 TR INR over the last two years
- Only 4 out of 17 funds outperformed the S&P 500 TR INR over the last three years.
The full list is given below. The benchmark return is indicated in bold. The table is sorted in descending 3Y returns. Returns for the NASDAQ 100 TR INR (an appropriate benchmark for some funds like PGIM Global) is also indicated.
| Scheme Name | 1 Year | 2 Years | 3 Years |
| PGIM India Global Equity Opp Fund(G)-Direct Plan | 33.0 | 40.7 | 32.4 |
| Franklin India Feeder – Franklin U.S. Opportunities Fund(G)-Direct Plan | 37.1 | 36.0 | 26.6 |
| Nippon India US Equity Opp Fund(G)-Direct Plan | 35.9 | 27.8 | 22.9 |
| ICICI Pru US Bluechip Equity Fund(G)-Direct Plan | 36.7 | 28.6 | 22.6 |
| S&P 500 TRI INR (NASDAQ 100 TRI INR) | 37.8 (43.2) | 27.8 (43.9) | 21.3 (31.4) |
| DSP US Flexible Equity Fund(G)-Direct Plan | 36.1 | 28.0 | 19.0 |
| Aditya Birla SL Global Emerging Opp Fund(G)-Direct Plan | 29.6 | 27.9 | 16.3 |
| Sundaram Global Brand Fund(G)-Direct Plan | 34.6 | 24.1 | 15.8 |
| Principal Global Opportunities Fund(G)-Direct Plan | 44.2 | 26.5 | 15.1 |
| Aditya Birla SL Intl. Equity Fund-A(G)-Direct Plan | 25.4 | 20.0 | 14.9 |
| Edelweiss US Value Equity Offshore Fund(G)-Direct Plan | 36.3 | 20.5 | 14.8 |
| HSBC Global Emerging Markets Fund(G)-Direct Plan | 23.6 | 21.0 | 13.6 |
| DSP Global Allocation Fund(G)-Direct Plan | 18.6 | 19.6 | 13.5 |
| Aditya Birla SL Intl. Equity Fund-B(G)-Direct Plan | 53.7 | 22.7 | 13.4 |
| ICICI Pru Global Stable Equity Fund(FOF)(G)-Direct Plan | 26.3 | 17.5 | 12.9 |
| Kotak Global Emerging Mkt Fund(G)-Direct Plan | 26.6 | 21.5 | 12.5 |
| Invesco India Feeder – Invesco Global Equity Income Fund(G)-Direct Plan | 33.9 | 18.4 | 11.1 |
| Aditya Birla SL Global Excellence Equity FoF(G)-Direct Plan | 33.2 | 10.5 | 8.7 |
| Edelweiss US Technology Equity FOF-(G)-Direct Plan | 44.5 | ||
| ICICI Pru Global Advantage Fund(FOF)(G)-Direct Plan | 22.8 |
What does this mean for investors?
Investors should not rush to invest in the outperformers on this list! They are unlikely to keep that status for long! We have seen this happen again and again in our reviews:
- PGIM India Global Equity Opportunities Fund Review: Should You Invest?
- Mirae Asset NYSE FANG+ ETF and FOF Review
- ICICI Prudential US Bluechip Equity Fund Review
- Franklin India Feeder Franklin U.S. Opportunities Fund Review
- Axis Global Innovation Fund of Fund Review
- Axis Global Equity Alpha Fund of Fund Review: Should You Invest?
- Edelweiss US Technology Equity Fund of Fund: What you need to know
- Edelweiss Greater China Equity Off-shore Fund Review
- DSP US Flexible Equity Fund Review
Be it a fund of fund investing in a foreign actively managed fund (domiciled in Luxembourg!) or a locally managed active fund (eg. US Bluechip Equity), consistently beating the S&P 500 or the NASDAQ 100 is quite difficult.
On top of it, there is the TER chared for a fund of fund. It is nothing short of atrocious that the direct plan of the fund of fund charges an additional TER comparable to that of the underlying active fund. The regular plan charges an additional TER of about 2X of the underlying fund. So if the lack of performance does not result in less than benchmark returns, the expenses will ensure it.
Therefore investors seeking “international diversification” (in most cases this is just recency bias, not a portfolio management tactic) are better off with Motilal Oswal S&P 500 Index Fund (click the link to check what returns to expect). This fund remains the most reasonable option to invest in the US/international market (without the concentration risk and volatility of the Nasdaq 100 ETF or FOF from the same AMC). In the next article, we shall discuss the tracking error of both these passive investing options.