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Should Indian foreign portfolio investors opt for US-listed ETFs?

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The US market continues to be the innovation hub of the world and is expected to deliver world-beating returns. In recent years, many exchange traded funds (ETFs) have been introduced in this US market, giving investors an abundance of choice.

Should Indian foreign portfolio investors opt for US-listed ETFs?
The US market continues to be the innovation hub of the world and is expected to deliver world-beating returns. In recent years, many exchange-traded funds (ETFs) have been introduced in the US market, giving investors an abundance of choice.
These ETFs, experts say, are a good starting point for those looking to invest in US stocks from India.
Calling them simple, transparent and diverse in nature, Soumyo Sarkar, a member of the Fintso Advisory Council and CEO of Sumit Capital said that ETFs can help one in avoiding the risk of investing in a single stock.
With ETFs, unlike buying individual stocks, individuals end up buying a bunch of stocks representing either an index or a specific sector.
There are other benefits too of investing in US-listed ETFs.
According to Viraj Nanda, CEO, Globalise, the breadth and depth of the ETF universe is enormous and that makes it a good bet.
Nanda was referring to the range of ETFs available and the large pool of assets invested in them.
He said, “There are ETFs for investors seeking broad US market exposure. These typically track the major indices such as the S&P 500 and Russell 1000. There are asset class ETFs such as commodity and fixed income. At the other end, there are also ETFs that offer exposure to niche areas of the market or specific themes, say clean energy, artificial intelligence, cloud computing and video gaming.”
While these are the themes that are likely to dominate the future of humanity, it makes sense to note that many of these themes are not available for investment in India. Hence, investors should make an informed choice.
Talking about other benefits, Nanda said that US-listed ETFs can offer an investor a truly global allocation framework through the various country-specific and region-specific ETFs and through the sectoral ETFs.
For instance, he said that European ETFs offer exposure to one of the cheapest markets in the world, while Asian ETFs provide exposure to some of the fastest-growing markets in the world.
In short, it is possible to build a portfolio that is fully diversified across countries and industries with just a handful of ETFs.
Another advantage to note here is liquidity. Nanda said that the liquidity of these ETFs is very high.
“This makes it seamless to make dynamic changes to one’s portfolio and at the same time smoothens the investment process by eliminating the worry of getting stuck with thinly traded securities,” he said while speaking exclusively to CNBC-TV18.
Talking about the current scenario, Nanda said getting exposure to US-listed ETFs make sense now from both a strategic and tactical viewpoint.
“Strategic allocation is the positioning to achieve target weights for long-term goals and based on individual risk preferences. The tactical allocation would refer to taking advantage of market conditions to make specific bets,” he said.
The tactical shift, he said, can be done by either adjusting position weights by buying additional ETFs or by rotating into sector ETFs that look more attractive.
“Sector ETFs are a popular way to make bets based on one’s view on valuation, momentum, or earnings growth,” he said while speaking to CNBC-TV18.
So, what category of investors should go for them?
Talking about the same, Nanda said that typical Indian investors with all their investments within the country would achieve significant diversification benefits by expanding their horizons to US ETFs.
“Investing in US-listed ETFs should also be pursued by investors planning future spending in the US, say for education or a real-estate purchase. Systematic investment in US ETFs can help diversify a portfolio away from domestic market idiosyncrasies and a depreciating rupee while helping accumulate dollar-denominated assets for future consumption,” he added.
To conclude, Indian investors should participate in the innovation story by investing in the US-listed ETFs rather than witnessing from the outside, while choosing the right ETF from the pool of thousands.
Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.
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