Is it still worth investing in US-based funds?
The year 2019 and 2020 were the most rewarding years for international funds, especially the US-based funds. In this article we would be re-visiting US funds to understand are they still worth your money.
When it comes to international or global investing, people are still very much not aware of what do they actually mean. Mostly, they feel investing in S&P 500 or NASDAQ 100 gives them good international exposure. However, that’s not true. A true international fund is one that invests your money across the globe in companies from the US, UK, China, Australia, Canada, Japan, etc.
However, the fact is that there are very few funds that logically invest globally. Most of them are country-specific or are global but are focussing on a specific theme or sector. So, out of the total 39 funds, there are only seven funds that are truly international of which only five funds are older than three years. There are almost nine out of 39 funds that are specifically dedicated to US stocks of which only 6 funds have a net asset value (NAV) history of more than three years.
The average three calendar year returns of US-based funds is 28.92%, whereas that of the international fund is 20% The US Based funds have performed this well just because of FAANG (Facebook, Apple, Amazon, Netflix and Google). In fact, Mirae Asset had launched a fund specifically dedicated to FAANG. Though, such a concentrated portfolio shows a great earning higher return, but also is higher on the risk side.
|
Risk Metrics |
Standard Deviation (%) |
Sharpe Ratio |
Sortino Ratio |
|
International Funds |
15.5 |
1.0 |
1.7 |
|
US-Based Funds |
17.4 |
1.4 |
2.3 |
As you can see when it comes to risk, as measured by standard deviation, international funds being well-diversified have lower risk as compared to US-specific funds. However, US-specific funds showed better results in terms of risk-adjusted returns.
So, is it worth investing in US-specific funds now? For December 2021, the consumer price index (CPI) in the US ascended to 7%. The meet of the US Federal Reserve Federal Open Market Committee (FOMC) is scheduled for January 25, 2022, and January 26, 2022. With the rising inflation, it is expected that they might consider a rate hike sooner than expected. 86% of the traders trading interest rate futures in the US expects the likelihood of a rate hike in March.
For the past one and half years, there was a rally in the stock market that is highly attributable to the injected liquidity by the central banks across the globe. However, when the liquidity is withdrawn and interest rates start inching, the volatility is likely to hold its ground. Therefore, at the current juncture, it makes complete sense to have a well-diversified portfolio and rather than having US specific exposure, try to invest in true international funds.
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