Global Funds: Invest in Global Markets

With increasing globalization and interconnectivity, nothing seems out of reach in the world today. We are able to buy and sell from and to even the remotest corners of the globe. The question is while we go so far when it comes to consumption, why do we hold back on going global with respect to investing?

The answer could be “home bias.” Home bias is the tendency of investors to invest a majority of their portfolio in domestic equities. Investors typically tend to ignore the benefits of diversifying into foreign equities and are averse to external markets owing to unfamiliarity. In India, ~99.8%* investors invest in the home market, which indicates a huge home bias.

But, did you know India accounts for only 3%^# of the global market capitalization? This means that if you’re investing in only domestic stocks, you are being exposed to only a tiny part of what the world of investing has in store.

The main problem with limiting yourself to only domestic markets raises your portfolio’s concentration risk of investing in just one economy.

Another problem is that you end up missing out on certain sunrise sectors or growth themes. So, although India holds the tag for fastest growing projected economy, currently almost all equity investment opportunities arising are in sunrise sectors which are not available on Indian exchanges. These sectors include Consumer Internet (such as Facebook and Alphabet), Ecommerce (giants such as Amazon and Alibaba), Consumer brands such as Nike and Adidas, and Payments such as Visa and Mastercard.

Global markets are home to companies of a global stature which have the scale, customer base, network effect, and competitive moat that very few Indian companies can achieve in the near term.

Another important argument in favour of global investing is that different markets have different risk levels, with developed markets having lower risk. Further, different markets behave differently, which offers the scope of returning better risk-adjusted returns. Thus,adding a global flavour to your investments truly diversifies your portfolio, unlike a 100% domestic portfolio which only provides partial diversification.

A final and compelling reason to invest globally is simply because it is possible to do so easily with the help of mutual funds. Fund houses allow domestic investors to invest in fund of funds, wherein you can indirectly invest in an international fund. This way, you can not only leverage the expertise of global fund managers but also get easy access through a domestic fund house.

# World Bank. Data as on 31st Mar, 2020

*Vanguard Report: The global case for strategic asset allocation and an examination of home bias's published in Feb 2017

Disclaimer: This article represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management Company Limited, its Directors or associates shall be liable for any damages including lost revenue or lost profits that may arise from the use of the information contained herein. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s). Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC). Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.
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