Franklin Templeton would have disappointed many investors in its debt funds with the freeze and wind-up announcement of six schemes in April.
But it would not be fair to paint all the schemes of the fund house with the same unflattering brush.
Some of its equity schemes have done well over long periods and hold good potential. Among these is Franklin India Feeder - Franklin US Opportunities Fund.
The open-ended fund-of-fund invests in the units of Franklin US Opportunities Fund. The latter is an overseas Franklin Templeton fund that primarily invests in US stocks. Franklin India Feeder fund has a mandate to invest at least 95 per cent of its corpus in Franklin US Opportunities.
In line with this, the corpus of Franklin India Feeder is fully invested in Franklin US Opportunities as of April 2020. The fund is among the best performers in the category of Indian funds investing in global stocks.
As of May 27, it sports a rupee return of nearly 29 per cent over the past year, and annualised returns of about 20 per cent, 13 per cent and 17 per cent over the past three, five and seven years, respectively.
Since its inception in 2012, the fund’s annualised return has been about 18 per cent.
Portfolio
The underlying fund, Franklin US Opportunities, is benchmarked to the Russell 3000 Growth Index. The fund can invest across market-caps, but its holdings are mostly in large-cap US stocks (about 82 per cent as of April 2020).
The fund’s portfolio has more than 80 stocks; its major holding is in technology stocks, with exposure to other sectors, too, such as financial services, healthcare, consumer cyclical, communication services and industrials.
The top 10 holdings of the fund include Amazon, Microsoft, Mastercard, Visa, SBA Communications, Apple, ServiceNow, Alphabet, CoStar Group and Adobe. Many of these stocks have done well over the past few years.
There are good reasons why Indian investors should consider having some exposure to foreign stocks.
One, given that global markets do not often move lock-step, geographical diversification can help shield their portfolio from volatility in a single, local market, say India.
Next, some niche opportunities such as cutting-edge technology stocks are available only in global markets.
Also, the general downward trend of the rupee vis-à-vis major global currencies, such as the US dollar, aids its returns on global stocks.
Franklin India Feeder - Franklin US Opportunities Fund’s positive return over the past year — in contrast to the negative returns posted by many domestic funds — highlights the benefits of global diversification.
The underlying fund has delivered positive returns in USD terms, and the rupee return in the feeder fund has been enhanced by the weakness in the Indian currency.
Go for SIPs, not lump sum
But caution is warranted. The US stock market has had a strong run over the past few years and also staged a good recovery from its lows in March. Given the ongoing uncertainties and challenges to economic growth due to Covid-19, and the possibility of a flare-up in tensions between the US and China, weakness in the US stock market cannot be ruled out.
Also, currency movements are unpredictable. Besides, there have been periods in the past when the Indian market has done better than the US market.
So, you may be better off investing in Franklin India Feeder - Franklin US Opportunities Fund regularly through the systematic investment plan (SIP) route rather than in lump sums. This will help you take advantage of market falls, if any, to reduce your overall cost of acquisition. There could be pain in the short and medium term.
Have a long-term horizon of at least five years and invest a part of your money (say, 5-10 per cent of your portfolio); don’t go overboard looking at past returns. Keep expectations tempered.