Is it time to consider investing in international ETFs?

ETFs or exchange traded funds investing in international stocks have seen increased investor interest in the last three months since the Securities and Exchange Board of India stopped mutual funds from investing in overseas stocks in February. The ban came into play after the mutual fund industry breached the threshold of US$7 billion for the industry. However, ETFs investing in international markets haven’t reached their limit of US$1 billion per fund house yet.

According to data from Morningstar, there are six ETFs investing in global markets. The total AUM size of the ETFs investing in global markets stood at 76,917,578,697 by the end of February, 2022. The AUM rose to Rs 81,726,187,398 by the end of March, 2022. This jump was attributed to the ban of international funds and other equity schemes who had some exposure to international equities.

Mutual fund advisors believe that geographical diversification via ETFs is a good idea at the moment as Sebi hasn’t increased the limit yet and there is no timeline for the same. However, they believe that ETFs can be a little tricky for investors who have never traded on exchanges directly. “We continue to believe that international ETFs are a good option to both geographically diversify portfolios as well as protect against an Indian rupee depreciation. With many global markets now in line with or below their long term averages, it is a good idea to continue to build international exposure in our view to diversified international strategies. Till the time international mutual funds are open for subscription again, ETFs are a good way if you are comfortable with exchange trading,” says Vishal Dhawan, Founder, PlanAhead Wealth Advisors, based in Mumbai.

International ETFs AUM in February AUM in March AUM in April
Mirae Asset NYSE FANG+ETF 12,426,797,198 12,986,540,308 10,711,486,737
Mirae Asset S&P 500 Top 50 ETF 5,062,447,830 5,268,048,948 4,634,640,588
Mirae Asset Hang Seng TECH ETF 1,077,607,136 1,103,601,649 1,124,325,081
Motilal Oswal Nasdaq Q 50 ETF 183,261,018 186,378,994 164,197,038
Nippon India ETF Hang Seng BeES 906,672,517 882,220,516 851,862,378
Motilal Oswal NASDAQ 100 ETF 57,260,792,998 61,299,396,983 52,581,873,965

The rise in the AUM of global ETFs has, however, dropped in the last month. Mutual fund advisors believe that it is because of the volatility in the global markets. They believe that since ETFs are meant mostly for investors who trade on exchanges, there can be constant redemptions and repurchases, unlike mutual funds.

“In the last one month, due to the rise in interest rates globally, markets are going haywire. Most of the ETFs in India invest in the US market and that has been under a lot of pressure lately. Investors seem to be sitting on the fence and waiting for some clarity. Some of the correction is also reflecting in the AUM and some of it is outflow because of volatility. I believe the ETFs will gain back in some time as the situation gets better or at least there is a clarity about the global economic situation,” says P Chokkalingam, Founder, Prakala Wealth Management, based in Chennai.

International ETFs 3-month returns 6-month returns 1-year returns
Mirae Asset NYSE FANG+ETF -13.91% -25.29% -15.87%
Mirae Asset S&P 500 Top 50 ETF -5.41% -9.46% NA
Mirae Asset Hang Seng TECH ETF -10.28% NA NA
Motilal Oswal Nasdaq Q 50 ETF -7.67% NA NA
Nippon India ETF Hang Seng BeES -2.97% -8.50% -23.09%
Motilal Oswal NASDAQ 100 ETF -7.25% -16.59% -0.01%

So, mutual fund investors who want to take exposure to international markets can do it via these ETFs but remember that ETFs are different from international mutual funds. If you are comfortable with the exchange trading and operating a demat account, you can explore this option.


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