Equity Insights: Global Perspectives 20th Dec 2013
Global goals of new generation clients call for globally diversified portfolios
Shiney Sebastian & Maxie Jose, Affluenz Financial Services, Kochi

imgbd

Shiney and Maxie, the hugely successful couple who run one of Kerala's largest IFA firms, have been strongly recommending global diversification to their affluent clients. They make two important points that make for a compelling case for global diversification : (1) global goals of new generation clients necessitates appropriate global diversification of portfolios, and (2) integration of world markets throws up huge investment opportunities beyond Indian markets, that are difficult to ignore. Read on as they share their experiences on how they are positioning global diversification to their clients.

WF : What is prompting you to consider global diversification for your clients now?

Shiney & Maxie : Increasing sophistication of the investors has provided a huge opportunity for investing in the global markets. These in addition to a currency hedge, provide diversification effect that comes from investing in countries with low cross-correlations, which can result in both an increase in return and a reduction in variability at the total portfolio level over the long term. In other words, global diversification helps to improve the risk-adjusted performance of the portfolio.

Rarely do we find any single market that has consistently performed among the top global markets. As the winners rotate unpredictably, we think it makes eminent sense to hold a portfolio that's diversified across regions. Moreover, the independent movement of global markets react to factors such as different domestic monetary and fiscal policy cycles. These can provide considerable diversification benefits when held in combination with Indian investments (though correlations tend to converge in periods of financial crisis).

WF : The three benefits usually associated with global diversification are widely seen as (1) harnessing a wider range of opportunities not available in India, (2) achieving superior risk adjusted portfolio returns through the benefits of diversification and (3) currency hedge. In your view, what would be the pecking order of these benefits?

Shiney & Maxie : Currency hedge remains the main objective due to the global goals of the new generation clients. Following this would be the other two benefits :

  • achieving superior risk adjusted portfolio returns through the benefits of diversification

  • harnessing a wider range of opportunities not available in India

WF : Global diversification is normally seen as relevant for globally travelled HNIs, who perhaps may relate to the concept better. Is this the segment you are looking at too? Are there other customer segments you think should consider global diversification?

Shiney & Maxie : Our business model is essentially focused on HNI/NRI/Sophisticated clients. While it's absolutely true that these funds are easy to advise to a globally travelled HNI who has a better perspective of international investment opportunities, it has seen increasing acceptance with other middle class and upper middle class investors. Aspirations for international travel and foreign universities/ higher education for children have seen enhanced appetite for these products. For them these provide excellent currency hedge while proving the much required geographical diversification.

WF : What have been your experiences in conversations you have had with clients on this concept? What appeals most to them? What are they most concerned about? How do you try to address their concerns?

Shiney & Maxie : There has been a major change in the sophistication levels of clients and their understanding of the international investment products. Most investors are concerned about the currency hedge, which are linked to their global goals like international travel and education. Case in point has been the recent fall in Rupee, where some of our clients who had dollar expenses, saw a huge advantage in having an exposure in dollar dominated assets.

The usual belief is that Indian markets have all the products they need to invest but we believe that with the world markets integrating the way they have been particularly in the last decade, capitalizing on the opportunities arising out of this offer tremendous value to the portfolio which cannot be ignored. It would be definitely beneficial for the informed investor to invest in this space and our role to create that awareness with the uninformed one.

WF : Would global diversification fit into the core or the tactical part of your client portfolios? For core allocations, what kind of funds would you consider now? For tactical, what themes look interesting now?

Shiney & Maxie : Although mandated to invest in global investments, we would strongly recommend higher weight towards domestic stocks. The global exposure should be limited to 20% of the fund's assets except in unique circumstances for the client. While the larger and developed markets could be a part of the core portfolio, the emerging markets and high-beta economies could provide tactical opportunities.

WF : Clients have an option of taking the US$ 75000 remittance route or investing in funds in India that feed into global funds. How do you compare these two alternatives and what makes better sense for investors?

Shiney & Maxie : Despite the enhanced exposure to the international investment opportunities, most investors are comfortable with investing into schemes that feed into global funds. Perception of better control over their funds and avoiding any foreign exchange related issues have been the main reasons. They also opine that remittance route also lacks any regulatory control from Indian authorities. Most of our clients who have invested in global funds have achieved so through feeders.

WF : What are the key risks you ask clients to bear in mind when considering investing globally?

Shiney & Maxie : If your investment goes global, your risk does, too. Global investments will be subject to geo-political, economic, and country-specific risks, and also currency deviations. So, your global fund will be more prone to sub primes, tsunami and sovereign defaults. However, it is germane to mention that economies are no more insulated to other global events. With increasing integration of the Global economies, these risks will be transmitted to Indian investments as well.



Share this article