Does the Motilal Oswal MSCI EAFE Top 100 Index Fund give healthy global diversification?

The scheme allows investors to own stocks from some of the key developed markets. Many of these stocks are of companies backed by profit-making businesses and long history of operations. Investors looking for meaningful diversification can look at this scheme. MSCI EAFE index has 42 percent correlation with the Nifty 500 index and it has 57 percent correlation with the S&P500 Index. A low correlation means that two assets won’t rise and fall together.

Kaustubh Belapurkar, Director-Fund Research, Morningstar India says, “The MSCI EAFE Top 100 index gives exposure to ex-US Developed market large cap stocks. These are companies that have well-established global businesses and brands.”

As the index comprises a large non-US stocks universe, it helps investors spread out their risks. “Most global investing is concentrated in the US – but it’s imperative that investors build a global portfolio with countries and geographies outside the US. Developed markets are the largest non-US category,” says Pratik Oswal, Head of Passive Funds, Motilal Oswal Asset Management Company.

Most investors who find it difficult to pick individual countries or regions and invest in them would find it easier to invest in this scheme. The index has 10 percent allocation to the technology sector. That makes it stand out at a time when most of the money is chasing technology stocks. Investors looking for non-tech diversified investments may find this interesting.

Being a passively managed fund, it should charge less than the other actively managed global allocation or Europe focused funds. The index fund structure ensures liquidity in the scheme.

What doesn’t

Europe or Japan have not done well in the past few years. Over a five-year period the MET100 gave 11.5 percent returns, compared to 16.6 percent returns given by the Nifty 500 TRI and 19.7 percent from the S&P500 TRI. The index in question is also quoting above its historical average valuations. But over the last few months, a lot of money is pumped by central bankers across the world to revive the respective economies.

“Over the last 10 years, European stocks have underperformed US stocks. The valuations are relatively more attractive; this can be an interesting space to invest to complement US markets exposure, which many investors are already taking,” says Belapurkar.

Since this scheme invests in stocks listed overseas, it is treated as a debt fund for the purpose of taxation.

Should you invest?

“For most investors looking for geographical diversification, an investment in S&P 500 Index is adequate, as it gives exposure to global growth through companies that earn their revenues across the globe,” says Abhay Mathure, a Mumbai based mutual fund distributor.

Most individual investors restrict their overseas exposure to one scheme. They may find S&P 500 index a better alternative. MOAMC has so far done well with two of its international index funds – Motilal Oswal Nasdaq 100 ETF and Motilal Oswal S&P 500 Index Fund. The new offering intends to go beyond the US.

Investors may not be missing much if they are invested in a diversified index such as the S&P 500 index. However, for the savvy lot MOMET100 may be an effective alternative.

Vinayak Savanur, Founder and CIO at Sukhanidhi Investment Advisors, finds the MOMET100 useful given the exposure to many economies beyond the US and the large-cap nature of the investment. However, given the high valuations enjoyed by stocks, he asks investors to have a long-term view if they are keen on investing in this scheme. “Investors are better off investing in a staggered manner in this scheme with a minimum five years’ timeframe. Longer the better,” he adds.