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Direct Gateway for Indian Investors to US markets!
June 19, 2012

ICICI Mutual Fund has launched a new fund offer focusing on the US economy. This article provides our take on the same.

Author : iFAST Research Team

 Direct Gateway for Indian Investors to US markets!

 If you thought that investing into Google, Facebook or IBM was a far-fetched idea, it’s time for you to reconsider that thought, here is an opportunity to take an exposure into these stocks via the mutual fund route. ICICI Mutual fund has launched a fund focusing on the world’s largest economy, i.e. the United States of America. The main feature that stands out in this fund is that the fund manager has complete control on the stock picks, unlike a fund of fund whereby the parent fund dictates the stock selection.

US economy represents approximately 22% of the global GDP, which is a significant portion of the global economy. In addition to fueling the US economy’s growth, US companies derive a substantial amount of revenue (estimated at over 50% of the total revenue) from outside the US. This is a clear indication of the strong global brand power that many of the major multinational US companies possess.  Though US growth expectations remain weak, we believe a combination of stronger housing construction activity and improved consumer spending will be sufficient to power the US economy in 2012, even with Eurozone debt concerns brewing across the Atlantic. The biggest advantage of the US markets is the extremely attractive valuations that are prevalent in the current uncertain environment. US equities currently trade at just 12.9X current-year earnings (as of 15 May 2012); a hefty discount to our 15X fair PE estimate, which leads us to expect  a strong upside potential for the US equity market. Our forecasts are predicated on US companies maintaining moderate levels of earnings growth (in the expectation that the US economy will remain in a state of expansion) in addition to the market’s reversion to a higher multiple of earnings.

The Indian markets are going through a rough patch with both domestic and global factors weighing on investor sentiment. Although we are expecting short-term fluctuations in Indian equities, in the long term we feel that the India growth story will remain intact. However, on the valuation front, Indian markets are looking attractive as can be seen from the fact that the benchmark index is trading at a trailing twelve month PE of 14.5x against the 10 years historical average of 16.5x (as on 15 June 2012). Indian markets are heavily dependent on capital inflows and whenever there are global headwinds, we see a flight of capital, which in turn has a negative impact on the overall market sentiments. The chart depicts the movement of the domestic market vis-à-vis global markets since 2008 when the global economy was facing the heat of sub-prime financial crisis.

Chart 1: Relative performance of major indices in INR terms since 2008

Salient Features of this Fund

ICICI Prudential US Bluechip Equity Fund is a large cap fund which will invest in companies listed on New York Stock Exchange (NYSE) and/or NASDAQ. The fund house has entered into a partnership with Morningstar Equity Research Services (MERS), considered to be one of the leading independent investment research groups in the world. Morningstar will identify stocks on the basis of a strategy called Wide Moat; however the final selection of stocks will rest in the hands of Indian fund managers. Companies that receive a Wide Moat rating have a very strong competitive advantage in terms of intangible assets, cost advantages, etc. These companies have the potential to generate better returns on new capital employed than the cost of capital for at least 20 years.

Our Take

We at have always been advising Indian investors to take an exposure into the global markets not only for diversification purpose but also to avoid concentration risks. This fund looks promising considering the fact that the US economy is set to recover and while  growth projections are moderate, there is no fear of recession gripping this economy unlike in Europe. An exposure into this fund also enables Indian investors to take part in the growth momentum that will take place in the world’s largest economy. The biggest advantage of this fund is that it directly invests into the US markets without going through a feeder route wherein the decisions are made by fund managers outside India. We are of the view that Naren and his team will show the same expertise in making the right investment decisions  as they have been known to do in case of  domestic funds. A word of caution to investors is the exposure of this fund to currency fluctuations.

New Fund Offering Details

Scheme ICICI Prudential US Bluechip Equity Fund
Fund Objective The investment objective of the fund is to provide long term capital appreciation to investors by primarily investing in equity and equity related securities (including ADRs/GDRs issued by Indian & foreign companies) of companies listed on New York Stock Exchange (NYSE) and/or  NASDAQ.
Nature of the Scheme Open ended Equity Fund
NFO Opens 18-Jun-12
NFO Closes 2-Jul-12
Minimum Investment Amount INR 5000
Benchmark S&P 500 Index
Fund Manager  Atul Patel (Dedicated for US portion) & Chaitanya Pande (Dedicated for India portion)
Entry Load Nil
Exit Load 3% if redeemed/ switched out within 3 months (including the last day of the 3rd month) from the date of allotment
1% if redeemed/ switched out after 3 months but before 1 year (including the  last day of a year) from the date of allotment
nil if redeemed/ switched out after 1 year from the date of allotment

Source: SID, iFAST Compilation

Disclaimer: iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's scheme information document including statement of additional information. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer on the website.Please read our disclaimer in the website. Risk Factors: Mutual funds, like securities investments, are subject to market risks and there is no guarantee against loss in the Scheme or that the Scheme’s objectives will be achieved. As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on various factors and forces affecting capital markets. Past performance of the Sponsor/the AMC/the Mutual Fund does not indicate the future performance of the Scheme. The name of the Scheme does not in any manner indicate the quality of the Scheme, its future prospects or returns. Please read the Statement of Additional Information and Scheme Information Document carefully before investing.

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