An overseas PF is a good diversifier as many themes like semiconductors, electric mobility, AI and robotics, cloud, genetics and such are not fully represented yet in India. I am overwhelmed by the amount of wisdom on this forum and it would be a privilege to share and learn from you. These are highly tilted towards revenue growth, early stage with some earnings componder market leaders sprinkled in.
PLEASE DO NOT CONSIDER THIS AS ADVICE, DO YOUR DD, I am NOT A PRO
PF OBJECTIVES
To add geographical and sectoral diversity to PF.
To maximize returns by hopefully hitting on transformative companies.
To hedge against rupee value erosion.
Being an electronics, communications engineer, leverage my circle of competence.
PF CONSTRAINTS
Funding typically limited to 7 L per year. Excess outgo taxed at 5%.
Debt fund taxation of gains on Indian side, complicated dividend taxation.
Death tax on US situs assets limits US domicile stock value to 60,000 usd, anything above taxed at
40% + US estate estate tax (indian citizen, Indian wife, kids, Indian domicile).
US markets are quite efficient, very difficult to beat market returns.
As a fraction of net worth, I plan to invest only 10% in overseas stocks, another 10% in india domicile Nasdaq and Hangseng ETFs. Plan to rotate stocks around into non US stocks periodically to take care of the 60k usd limit. I will not Rebalance otherwise.
Composition
Ticker. Sector. PF weight age. Domicile
ASML. Semicon. 18%. Netherlands
ISRG. med equipment. 10%. USA
TEAM. Cloud. 12%. UK/Aust
SITM. Semicon. 8.5%. USA
SKWS. 5G. 8%. USA
OLED. Semicon, 7.5%. USA
ILMN. Genetics. 6.25%. USA
AMBA. AI, robotics. 6.5%. Taiwan
BLNK. EV. 4.5%. USA
XPEV. EV. 4.5%. China
ERIC. 5G. 4%. Sweden
LIT. EV. 3%. USA
ASX. Semicon. 3%. Taiwan
BE. renewables. 2%. USA
CPNG. ECOMMERCE. 2%. Korea
Questions
Does it make sense to have such a PF in the first place?
What is the ideal split between ETF and individual Stocks?
are there alternate Tickers I should be considering?
Hi Sir,
Actually I fell one of the benefit mentioned by you and most of investor for investing in foreigh countries is RUPEE DEPRICIATION. I feel this is actually not a benefit.
First I would like to put some calculations in front of you and there after I would like to explain why is RUPEE DEPRICIATION not a real benefit.
From 2000 till 2021 RUPEE has depreciated by 130% from 35 to 80 today. Now this is in nominal terms we have to understand in real terms as well. Total inflation in India from 2000 till 2021 has been close to 135% and total inflation in USA has been close to 30%. Now my number might not be perfectly wright but please do understand the context. In REAL TEARMS the depreciation is close to 37% only. Which comes out to be a CAGR of 1.6%.
To explain above calculation let me take an example. Suppose there is 100 INR and 10 USD in this world with an exchange rate of 10 INR per USD. Suppose india has an inflation of 100% and USA has an inflation of 10%. Inflation means that the purchasing power of your money reduces because of more money available in economy. Let us assume money supply and inflation are the same in this case. Which means now there is 200 INR and 11 USD available. Suppose the exchange rate goes to 15 INR for 1 USD which looks like 50% depreciation but if you see earlier I could have purchased only 10 USD for 100 INR but now I can purchase 11 USS for 165 INR and still have 35 INR left with me. This happened because the money supply increase was relatively grater than RUPEE depreciation. At the end of the day it is not about the money but it is about PP(purchasing power).
Forex is very dynamic but this is one of the reason for depreciation. Just think this way if suppose SRILANKA has 10yrs government bond yield of 30% then I should invest in SRILANKA get 30% and convert my money back. But in reality SRILANKA currency will depreciate by 30% against my currency if my country inflation is 0% and in reality I don’t make any money.
Secondly INDIA is a developing country so investing in developed economy is not at all a good opportunity imo. Your wealth will grow at a faster rate in INDIA than in developed economy.
Third companies in USA follow GAAP unlike IFRS in india. We follow accounting standards but it is aligned with IFRS. So understanding their rules and then analyzing adds a lot of work.
Diversifying your portfolio by investing in different countries is beneficial for HEDGE funds or big institutions but not at all at individual level.
At last I don’t know exactly how the investing works in overseas but we might loose a lot on conversion as well. just to give a real example 2 to 3 days back I received an INWARD remittance @79.10 but in the same day the OUTWARD remittance was processes at @80.35. Lot of money is also lost in long term during conversion.
@Tar SIR you have been investing in USA. I would like to understand what makes you invest in USA and not invest that same amount in indai. I would be extremely happy if you can explain me and enhance my understanding
Dear Manhar,
I could not quite follow your reasoning for explaining away rupee depreciation. One point is that if you hold Indian companies which are mostly export oriented, then you are also hedging against rupee depreciation to some extent. But, this still leaves your PF exposed to india-specific geographic risks.
While the overall market in developed countries does not grow quite as fast, individual stocks definitely do. Of course, it is incredibly hard to be able to pick out such star performers. Furthermore, some cutting edge developments like genetics, semicon, 5G/IoT, electric mobility etc. does not have a good enough breadth in indian companies. The individual stocks portion tries to get exposure to this aspect.
Thus, the component invested in index ETFs like nasdaq 100 will likely not grow as fast. The long term growth is only about 7 to 10% in dollar terms for nasdaq 100 (last decade is an exception). Here the motivation is diversification from India-specific concentration risks and depreciation hedge.
Both of these components will each be around 10% of my net worth. So 80% of my networth will still be indian assets (MFs and individual stocks).
