MUTUAL FUNDS

RETAIL RESEARCH

26 July 2016

Indian Mutual Funds that invest in US Equities

Performance of the Domestic Mutual Funds that invest predominantly in US Equities:
Scheme Name

Sch.
Age
(Yrs)

Benchmark

Investment approach

DSP BR US Flexible Equity

3.9 Russell 1000 index
US Multicap Equity
Franklin Ind Feeder - Franklin U.S. Opp
4.4 Russell 3000 growth
US Multicap Equity
ICICI Pru US Bluechip Equity
4.0 S & P 500
US Bluechip
JPMorgan US Value Eq Offshore
2.9 Russell 1000 Value
US Multicap Value
Kotak US Equity Fund
2.6 S & P 500
US Largecap Blend Equit
MoSt Shares NASDAQ-100 ETF
5.3 Nasdaq 100
US Largecap Equity
Reliance US Equity Opportunities
1.0 S & P 500
US Largecap Growth
Benchmark:
Average of Overall US based Funds
Average of Domestic Eq Diversified cate
Nifty 50 (INR)
S&P 500 (INR)
Russell 3000 Index TR (INR)
Russell 1000 Index TR (INR)
Russell 1000 Value Index (INR)
NASDAQ 100 (INR)
Depreciation in USD/INR
Note: NAV value as on 21 July 2016. Rolling Returns are calculated from last 3 years NAV history.

Max Exit
Load & the
Max period
1% & 1 Yr
1% & 3 Yrs
3% & 1 Yr
1% & 1 Yr
1% & 1 Yr
Nil
1% & 1 Yr

Latest
Corpus
(Rs Rs)

Exp
Ratio
(%)

118
667
173
124
5
62
14

2.13
1.86
2.59
1.85
1.27
1.00
2.59
1.90

Trailing Returns (%)

6
Month
Absolute
11.27
8.08
15.14
14.93
13.51
10.09
14.23

1
Year
CAGR
2.57
-5.19
7.16
1.30
4.54
4.28

3
Year
CAGR
10.59
11.25
12.70

18.71

12.46
17.72
17.19
14.55
16.56
16.26
17.48
10.92
-1.12

2.45
2.35
-0.44
8.32
9.43
9.96
8.09
5.40
6.02

13.31
22.62
12.39
12.80
14.61
14.99
10.28
19.56
3.99

Rolling Returns (%)

5
Year
CAGR

3
Month
Absolute
3.05
3.48
3.53

6
Month
Absolute
6.88
7.87
7.94

1
Year
CAGR
16.17
19.99
18.06

23.55

5.01

11.13

24.83

23.55
13.00
8.99
19.34
21.44
21.73
18.25
23.76
8.48

3.77

8.45

19.76

SD
(Ann)

12.03
14.68
12.18
10.72
10.98
14.26
13.28
12.59

Key points:

Indian Mutual Funds that invest primarily in US equities have delivered relatively similar/better returns over the short term and long term periods thanks to the
persistent depreciation in the rupee value against the US dollar coupled with appreciating value of US equities.

There are seven schemes in the domestic front investing mainly in the US equities of which some schemes invest directly in US equities while some schemes
invest in the mutual funds that operated in US and track the indices. The schemes - DSP BR US Flexible Equity, Franklin India Feeder - Franklin U.S.
Opportunities, JPMorgan US Value Equity Offshore and Kotak US Equity fund takes exposure into US equity market by investing in the US mutual funds called
feeder funds. The schemes - ICICI Pru US Bluechip Equity fund and Reliance US Equity Opportunities Fund are investing directly into US equities while MoSt
Shares NASDAQ-100 ETF, an ETF tracks NASDAQ-100 as benchmark.

The United States is the world's largest national economy in nominal terms and second largest according to purchasing power parity (PPP), representing 22% of
nominal global GDP and 17% of gross world product (GWP). The United States' GDP is the highest GDP in the world at $ 18.1 trillion (20% of Global GDP). The
US economy is showing signs of improving momentum in the recent periods, led by consumer and housing activity. Solid job growth, rising income gains, low
gas prices, and pent-up demand should sustain the pickup in household demand into next year, while stronger sales are expected to give a lift to business
investment. The Mutual fund schemes from the India which invest predominantly in US equities could perform well going forward given the recovery seen in
the US economy (relatively better than the rest of developed world).

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US is amongst the most well diversified markets that allows to invest in global brands which benefit from growth in global business & consumption. By
investing in US markets, the Indian investors get an opportunity to invest in global leading companies such as Microsoft, Apple, Coca-Cola etc.

Weakening of rupee against the dollar helps these funds in generating higher returns and vice versa. The INR has depreciated 50% (cumulative) since July 2011
(from 44.68 to 67.12) against the USD, which translates into a currency gain of 8.5% on an average each year. While we do not expect similar depreciation of
the Indian Rupee in future, a 2-4% annual depreciation is quite likely when seen over 3-5 years.

Global funds are better diversified investment options for Indian investors as international markets have low correlation with Indian equity market. BSE Sensex
and S&P 500 are relatively less correlated with US indices compared to the indices of other major economies. Correlation between Daily Nifty Returns and Daily
S&P 500 Returns for 3, 5 & 10 years are at 0.25, 0.26 and 0.29 respectively. By investing across countries, investors can minimise currency and geo-political
risks.

Global funds are high on expenses. The schemes that invest in overseas funds (FoF) have to bear double expenses while the schemes that invest directly in
international equities to bear more cost to buy and research stocks abroad.

Global funds lose out on capital gains and DDT benefits as far as tax implication is concerned as they are treated like debt oriented funds. Hence a resident
investor will have to hold units of such schemes for three years to qualify for long term capital gains tax (20% with indexation).

High risk appetite investors who wish to add geographical diversification to their portfolio and bet on the growth story of the US can consider investing in the
category with minimum investment horizon of three years.

Calendar Year Returns (absolute): Low correlation hence potential to diversify

Point to Point returns of the various US and Indian indices:

Source: Reliance MF.

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Positive factors that can be considered while investing in US equities:

Access to the worlds largest equity market.

Highest GDP in the world at $ 18.1 trillion (20% of Global GDP).

Holds biggest Market Capitalization as $23 trillion (36% of Global Market Cap).

Home to a quarter of Fortune 500 companies.

US Equities are a core component of global equity portfolios/indices.

Very low correlation between US and Indian Equity Markets (0.29 over the last 10 years). Diversification by investing in a low correlated market which may
lower the volatility in ones portfolio.

US is amongst the most well diversified markets offering to invest in global brands which benefit from global business & consumption.

Exposure to global benchmark currency i.e the US dollar.

INR has depreciated 50% (cumulative) since July 2011 (from 44.68 to 67.12 level) against the USD, which translates into a currency gain of 8.5% on an average
each year.

Access to certain sectors like semiconductor, aerospace, etc which may not be available in the Indian equity market.

Long term growth side intact on consumption side and US is a consumption based economy: Consumption constitutes 70% of the total U.S. GDP and is the
biggest contributor of GDP growth. Increased Job openings with higher wages could lead to increased disposable income in the hands of the consumer.
Secondly, Sharp fall in gasoline and other commodity prices have led to a fall in inflation, which could leave consumers with higher disposable income, thus
leading to the increased consumption.

Present scenario in US Economy:

The U.S. economy is expected to be remain a relative outperformer among the advanced nations undoubtedly, wherein continuing gains in consumer spending
and housing activity are helping to keep the U.S. on a moderate growth trajectory going forward. Relatively buoyant increases in jobs and wages, combined
with historically low interest rates and prices at the gasoline pumps, are underpinning the purchasing power of Americans.

Consumer confidence and spending remain well supported by strengthening job and income gains, cheaper gasoline prices, low borrowing costs, and rising
home values. Continued strong job growth has pushed the unemployment rate to a seven-year low, and alternative measures of labour market
underutilization continue to improve.

While US dollar strength and moderate global growth are weighing on export activity, solid domestic sales should maintain expanding manufacturing
production, led by motor vehicles and technology goods. At the same time, the US economy is getting a lift from a pickup in local and state government
spending.

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On the other hand, considering the risks associated with the economy, slumping exports and business investment attributable to the weakness in international
growth and a strong U.S. dollar are dragging on the economys overall growth performance. U.S. business investment activity seems to be sluggish though the
retrenchment in capital expenditure attributable to the lingering slump in energy prices is abating.

Fact is that the recent developments in the U.K. and Europe will reduce U.S. growth prospects marginally through trade and currency linkages, but the main
impact will be to delay increases in the Federal Funds rate. The Federal Reserve will likely keep policy on hold this year, and slow the pace of interest rate
normalization next year owing to the increased uncertainty and volatile financial market conditions in the aftermath of the U.K.s Brexit vote. This uncertainty
is already contributing to strong safe-haven flows into the U.S. dollar, which will weigh marginally on U.S. growth and inflation prospects.

On a positive note, any reduction in the myriad of the globes geopolitical problems would help to reduce U.S. spending caution. Some post-election resolution
on a range of policy issues, from constructively adjusting Obamacare to corporate tax restructuring, could offer some upside potential to U.S. growth. A further
rise in the price for crude oil would substantially improve prospects for business investment.

To conclude, the schemes that invest predominantly in US equities can help the investors to mitigate the currency and geo-political risks and tend to perform
well given their strong fundamentals and investors can look to allocate 5-10% of their portfolio assets in it. Any depreciation of rupee value against the US
dollar could also be positive for these schemes.

Basic details of US based domestic MFs:

Scheme Name

DSP BR US Flexible Equity

Franklin India Feeder Franklin U.S. Opp

ICICI Pru US Bluechip

Equity

JPMorgan US Value Equity

Offshore

Kotak US Equity

MoSt Shares NASDAQ100 ETF

Reliance US Equity
Opportunities Fund

Inception Date

Aug-12

Feb-12

Jul-12

Aug-13

Dec-13

Mar-11

Jul-15

invests in US MF

invests in US MF

invests in US equities
directly

invests in US MF

invests in US MF

tracks US ETF

invests in US equities
directly

Feeder Fund

BlackRock GF US Flexible
Equity I2 USD

Franklin U.S. Opportunities

Fund, Class I (ACC)

JPMorgan Funds - US
ValueFund (Share class - C)

Benchmark

Russell 1000 index TR

Russell 3000 growth TR

S & P 500

Russell 1000 Value Index TR

US Multicap Equity

US Multicap Equity

US Bluechip equity

US Value Equity

31-Aug-04

USD
3,723 USD
Luxembourg

How exposes to US
equities

Invests mainly in

Inception date of
11-Jul-12
Feeder scheme
Share Class Currency
USD
Total Fund Size (M)
629 USD
Domicile
Luxembourg
Morningstar
US Flex-Cap Equity
Category
Morning star rating
4 Star
FE trustnet Rating
4 Crown
Data source: AMC websites and other websites.

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Pinebridge US Large
Cap Research Enhance
Fund
S & P 500
US Large-Cap Blend
Equity

Nasdaq 100

Nasdaq 100
US large cap non-financial
teck heavy equity

S & P 500
US Largecap Growth
equity

1/09/2004

24-Dec-13

USD
2,587 USD
Luxembourg

USD
221 USD
Ireland

USD
US

US Flex-Cap Equity

US Largecap Growth

US Largecap Value

US Largecap Blend

US Largecap Growth

US Largecap Growth

4 Star
3 Crown

4 Star
2 Crown

3 Star
3 Crown

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Portfolio details of the US based domestic MFs:
Scheme Name

DSP BR US Flexible Equity

Franklin India Feeder Franklin U.S. Opp

ICICI Pru US Bluechip

Equity

JPMorgan US Value
Equity Offshore

MoSt Shares NASDAQ-100

ETF

Kotak US Equity

Reliance US Equity
Opportunities Fund (G)

Stock Name

Stock Name

Stock Name

Stk Name

Stock Name

Stock Name

Stock Name

Apple Inc
Alphabet Inc
Jpmorgan Chase
Comcast Corporation
Microsoft Corporation
Bank Of America Corp
Cvs Health Corp
Altria Group Inc
Pfizer Inc
Cisco Systems Inc

4.37
4.07
3.3
3.2
3.08
2.66
2.63
2.61
2.58
2.56

Alphabet Inc
Facebook Inc
Visa Inc
Allergan Plc
Amazon.Com Inc
Celgene Corp
Mastercard Inc
Sba Communi Corp
Apple Inc
Monster Beverage

4.37
4.16
3.93
3.57
3.53
3.44
3.25
3.19
2.6
2.36

Honda Motor
Taro Pharma
Cognizant Tech
Express Scripts
Biogen Inc
Gilead Science
Amgen Inc
Walt Disney Co
US Bancorp
CSX Corp

4.96
4.9
3.96
2.96
2.65
2.58
2.56
2.53
2.49
2.46

Wells Fargo
Exxon Mobil
Pfizer
Johnson & Jn
Loews
Merck & Co
Capital One
Bk of America
AIG
Chevron

3.8
3.7
2.9
2.6
2.1
2.1
1.9
1.8
1.8
1.7

Alphabet
Microsoft
JPMorgan Chase
Johnson & Johnson
Apple Inc
Facebook, Inc
Merck & Co., Inc.
Verizon Comm
SPDR S&P 500 ETF
PepsiCo, Inc.

3
2.2
2.2
2.1
1.9
1.9
1.9
1.8
1.8
1.8

Apple
Microsoft
Amazon.com
Facebook
Alphabet INC-Cl C
Alphabet INC-Cl A
Comcast Corpora
Intel Corporation
Cisco Systems
Amgen

10.21
7.85
6.67
5.21
4.64
4.03
3.05
2.98
2.81
2.23

Express Scripts
MasterCard Inc
Ventas
Time Warner
BlackRock
Baidu Inc
The Priceline Group
AmerisourceBergen
Alphabet
Cerner Corp

7.97
7.72
6.62
6.54
6.37
6.29
6.21
5.96
4.99
4.34

Sector Name

Sector Name

Sector Name

Sec Name

Sector Name

Sector Name

Sector Name

IT
Health Care
Consumer Discre
Financials
Consumer Staples

23.99
17.14
15.65
15.12
9.37

IT
Health Care
Consumer Discre
Financials
Consumer Staples

37.76
16.71
14.25
9.24
7.31

Health Care
Consumer Discr
Financials
IT
Industrials

28.15
23.46
19.69
11.19
11.03

Financials
Consumer Dis
Health Care
Energy
IT

34
12.4
10.6
9.9
7.4

IT
Health Care
Financials
Consumer Staples
Consumer Discre

20.1
14.5
14.3
12.1
11.8

Technology
Consumer Cyclical
Healthcare
Consumer
Communication

52.9
15.6
12.2
7.5
6.8

Financials
Technology
Healthcare
Consumer
Real Estate

27.13
22.06
20.06
19.1
7.22

Market Capitalization
(%)

Large-cap
Mid
Small

82
16
2

Large-cap
Mid
Small

76
21
2

Large-cap
Mid
Small

75
25
0

Large-cap
Mid
Small

74
26
1

Large-cap
Mid
Small

83
16
1

Large-cap
Mid
Small

91
9
0

Large-cap
Mid
Small

81
14.49
4.56

US
Israeli Equities
UK Equities
Canadian Equ

93
1.35
1.34
1.02

US
Eurozone
UK

97
2.3
0.46

North America
Japan

95
5

US

96

Geography
Breakdown (%)

US
Latin America

99
0

US
Asia Emerging
Greater Europe

96
2
2

US
Asia Emerging

93.14
6.86

TOP HOLDINGS (%)

SECTOR
BREAKDOWN (%)

Data source: AMC websites and other websites.

US based MF Vs. Sub-categories of other Global Funds:

Risk as measured by Standard Deviation (Annualized) among the sub-categories of Global funds:

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Trend in Corpus (Rs Crs) of the sub-categories of the Global Funds:

The above chart shows the increase in the corpus of the US based MFs considerably in the last two years period compared to other global funds.

Global Funds - Facts:

Benefits of investing in Global funds:

Diversification: Investors can diversify their portfolio through geographical diversification apart from various asset classes like domestic equities, debt,
commodities etc.

Access to global industry leaders: Investors can participate in the growth stories of the best and the biggest businesses (Face book, Microsoft, Alphabet, Intel
etc) globally many of whom do not have listed presence in India.

Stability: Global markets often perform in contrast as different countries go through different economic cycles. By having investments across currencies,
investors can ensure steady and stable returns on their investment.

Currency and Geo political diversification: By investing across countries, investors can reduce their currency exposure to Rupee and also reduce geo-political
risks.

Hedging: Investors who have future dollar expenses (for example, parents planning to send their children to US for higher education, importers having dollar
commitments, etc.) can hedge against any future depreciation in the rupee vis--vis the US dollar by investing in these schemes.

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Risks of investing in Global funds:

Currency risk: is explained in the below slide.

Fund managers expertise: The performance of global funds depend on the expertise of fund managers in handling international funds as not only the rupeedollar equation is considered but also the performance of rupee against other Asian currencies.

Higher Cost: In case of Fund of Funds, expense fees and management costs are higher than normal mutual funds, as the cost structure will include the fees of
the underlying mutual funds as well as the FoF.

Country-specific risks include political and economic instability in the country your investments are exposed to.

The need of global Diversification:

Investors have to note that no country can continue to perform well forever. Each one is going to have its own period of glory and worry. This is also the case
for India as well which has frequently alternated between the best and the worst phases.

Considering the chart below, while emerging markets are considered high potential, it is also equally true that they are more volatile. While the BSE Sensex
outperformed both the MSCI World Index and the MSCI EM Index in the period of 2002-2007, 2009-2010, 2012 and 2014 periods, it has been quite the other
way round in the 2008 and 2011 years.

Further, with low correlation of US equities with Indian equities, the overall risk of your portfolio is reduced; thus the investors will get the balanced returns
from the investment.

Performance of global barometers over a decade:

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Currency risk Explained:

When you spread your investment across the universe, you must bear the risk associated with fluctuations in the exchange rates. Fluctuations in the currency
values, whether Rupee or USD or the currencies of the countries where the mutual funds invest, can either enhance or reduce the returns.

Operationally, the rupee (invested by the investor in such global funds) is first converted into dollar (or Euro in case of funds that invest in Euro zone) and then
into the local currency for investing abroad and vice-versa.

To put in simple term, if the rupee appreciates vis--vis the dollar, the returns from the scheme will be adversely affected and vice-versa.

Any relative outperformance in the US equities coupled with depreciating rupee value against the dollar will result in the global funds generating favourable
returns in the next 15 to 24 months period.

The dollar witnessed appreciation against all the major currencies in the last 2 years period on the back of the US economy strengthening; investors have
ploughed back into the U.S., pushing the value of the dollar up against most major currencies.

USD Vs. Major currencies:

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Analyst: DhuraivelGunasekaran (dhuraivel.gunasekaran@hdfcsec.com)

Source: AMC Websites, NAVIndia.com & ACEMF

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HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Website: www.hdfcsec.com Email:
hdfcsecretailresearch@hdfcsec.com.
Disclaimer: Mutual Funds investments are subject to risk. Past performance is no guarantee for future performance.This document has been prepared by HDFC Securities Limited and is meant for sole use by the recipient and not for circulation. This document is not to be reported or
copied or made available to others. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as
such. We may have from time to time positions or options on, and buy and sell securities referred to herein. We may from time to time solicit from, or perform investment banking, or other services for, any company mentioned in this document. This report is intended for non-Institutional
Clients.
This report has been prepared by the Retail Research team of HDFC Securities Ltd. The views, opinions, estimates, ratings, target price, entry prices and/or other parameters mentioned in this document may or may not match or may be contrary with those of the other Research teams
(Institutional, PCG) of HDFC Securities Ltd. HDFC Securities Ltd. is a SEBI Registered Research Analyst having registration no. INH000002475.

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