Mutual fund schemes investing in US stocks are down dramatically. Schemes like Edelweiss US Technology Equity FoF, Kotak Nasdaq 100 FOF and IDFC US Eqt FoF are down -12.45%, -9.58% and -9.33% respectively.
The leading indices were down as Fed has signalled the end of the easy money policy by March. The Fed has kept interest rates near zero for a long time. However, it said this week that it will raise interest rates from March. It refused to elaborate how many hikes will be there this year.
“In my view, the year 2022 will be a tale of two halves. In the first half, the market will have to come to terms with policy normaisation, inflation, etc. which are macro issues that take a bit of time for the market to deter. At the moment when we talk about what is happening in the US market, it is in line with what I just said. The first half of this year is going to be volatile. The Fed is deliberating the pace at which they will raise interest rates. The quantitative easing policy is going to end. The volatility is the consequence of this adjustment. In this context, the growth stocks take a bigger hit and that is what is visible in the US market,” says Trideep Bhattacharya, CIO – Equity, Edelweiss AMC.
The possibility of tensions on the border of Russia and Ukraine leading to military aggression is also keeping the US market on tenterhooks. According to news reports, the U.S. Department of Defense has said that about 8,500 American troops are awaiting orders to deploy to the region if Russia invades Ukraine. In this backdrop, experts believe that the coming time can be volatile for the US-focused funds.
However, analysts say that this volatility should not impact those who have a long-term investment horizon and got into these schemes with the understanding of risk. “Stock markets are not linear and are impacted by a multitude of factors, investor behaviour being one of them. Investing in US equities gives investors the opportunity to diversify their investments and gain from holding exposure to the largest companies across the world. Holding on to investments over the long term helps average out returns and gives investors a positive experience as opposed to trying to time the markets. If you have the risk taking ability, you should stay the course,” says Kavitha Krishnan, Senior Analyst – Manager Research, Morningstar India.
If you are not sure about your investments in international markets, you should invest in schemes that match your investment strategy and risk profile. Trideep Bhattacharya says that. “I would say the volatility is going to be there in the Indian market as well. However, investors should stay focused on their asset allocation and investment strategy. Use this volatility to invest strategically more in Indian equities.”
Finally, if you have invested in schemes that invest in US stocks or indices, be prepared for some volatility. Remember, leading overseas indices would be under pressure. The market may wait for firm clues about future rate hikes. Be patient and stick to your investment plan.