In our previous blog, we had written about the prospective launch of our international investing portal, PL Vested https://www.plindia.com/blog/des-pardes-the-how-and-why-of-investing-in-us-markets/
Since then, a lot has changed in the world – with the words Corona and Covid occupying centrestage in our daily lexicon. But has the base case for investing in the US markets changed?
Looking Through the short term turbulence
Against the worrisome backdrop of COVID-19 spreading across the globe, the 11-year bull market in U.S. stocks came to a sudden end, falling from its all-time high into bear market territory in just 26 days. During that stretch, the Dow Jones Industrial Average posted what was then its largest one-day drop and its largest one-day advance over the course of three trading days. As things stand currently, the DJIA has outperformed the Nifty and the ratio is trading at several year highs.
Historically, the US markets have always been the ones to recover fastest from global crises and then outperform for long periods – and for a wide variety of reasons. While this year started out in favor of emerging markets, the Corona led correction apart from the Oil wars has ensured that the US markets again come centerstage – any recovery has to begin from the US as funds wouldn’t venture into risky assets till there is hard evidence that the crisis has well and truly ended. When it does…
Covid : Long term Impact on Behavioral Factors
Also, from a Covid long term point of view , assuming that the crisis becomes engendered deeply in how the world works, things seem to be in favor of Indians investing abroad in innovation around certain behaviors:
- “Deglobalization” is unlikely to recede; particularly since it was already underway courtesy of the trade war and increased tariffs. One of the longer-term implications of that might be a higher level of inflation than we’ve become accustomed to. This would mean a flight to safety as purchasing power recedes in developing economies.
- Health screenings will likely become a part of life—at airports, sporting events, and other large gatherings—akin to the ushering in of the TSA following 9/11.
- Deficits/debt will likely rise to even greater levels as a share of GDP that was imaginable before COVID-19 as spending on health and protection combined with security increase.
- Remote work and video conferencing could change the nature and frequency of business travel. This could also mean a lot of other things like expansion in demand for 3d design equipments , robotics and automation .
- Finally, financial caution will likely persist—by households who may want to build a more consistent liquidity cushion, and by companies looking to shore up their balance sheets.
One would therefore need to look at investing strategies that can benefit from such behavioral shifts – the world may soon no longer be a place you knew in 2019!
ADVANTAGE USA
Our previous blog had mentioned reasons why one should look at investing in the US markets – especially the fact that the USDINR generates an additional return of around 5% per annum for dollar assets, the US Markets are on a continuous outperformance spree over emerging markets and that longer term needs of education in the US or purchase of real estate etc abroad are best served by keeping money in assets there. And you could do this systematically by investing a little bit of money each month.
The Covid crisis has demonstrated the resilience of the US markets relative to the rest of the world. Even as the indices dropped precipitously, they have still outperformed global markets by almost a full 10% points the last 1 month – and when one removes the impact of the currency depreciation, the relative fall is lesser by almost 15%.
It’s tough to predict when foreign stocks will outperform, but maintaining a strategic allocation to them can help diversify risk.
In this blog, we present more reasons why investing in the US is serious business for anyone interested in wealth creation and / or diversification!
Systematic Investing into ETFS /Giants for Beginners
We believe beginners may want to start with regular systematic , regular, investing through our portal, https://pl.vested.co.in as there are many well known reasons (read our previous blog highlighted above as well) why one should invest in the US :
- Whats known is that the US markets account for 50%-52% of global market capitalization – because of the extent of globalization of US corporations, the market also gives you international growth exposure as almost 38% of these companies revenue originate from international markets.
- Very low correlation to emerging markets means that the risk is diversified away when crisis strikes.
- Our earlier blog mentioned the superlative returns from US equities (From January 1995 through June 2019, the MSCI USA Index’s return ranked seventh out of 49 single-country indexes, beating the MSCI ACWI ex USA Index by a whopping 4.3 percentage points annually- this would increase if we were to add currency impact).
- Exposure to global giants as part of the indices themselves presents a simple way to diversify holdings rather than having to pick these stocks yourself. For instance, ETFs on DOW (Dow Jones Industrial Average) would include household names such as Johnson & Johnson, Coca Cola, and McDonald’s, S&P 500 would include Microsoft, Amazon, Apple, Facebook, Berkshire Hathaway Inc, JPMorgan Chase & Co while Nasdaq would include, Apple, Cisco, Oracle and Dell,
In case you dont wish to invest in indices, and want some bit of advice, you could go to our portal , https://pl.vested.co.in, and once registered, look at investing into our “Vests” – which are nothing but baskets of stocks featuring these giants by industry or themes.
Note also that the Dividend yield in the US markets is closer to 1.3%, a full 1 % more than BSE Sensex and is therefore likely to remain a sought after market.
Stock Investing for The Experts, More Reasons than before!
For investors willing to do hard work themselves, the US markets are a treasure trove of opportunities.
For instance, the US market resilience shows up in the fact that of the more than 2,800 ESG-themed funds tracked globally by Bloomberg, about 400 were in positive territory for the year even at the end of March 2020! In fact, there were 45 funds that have managed to hold onto gains of more than 10% year-to-date. Why so? Because of their big positions in health-care, pharmaceuticals and technology stocks in critical areas that have strong long term benefits! Stocks which we in India may not have heard of like Becton Dickinson and Thermo Fisher Scientific Inc etc or some like Zoom rose to records this month. A stock called Teladoc Health Inc. also reached an all-time high (offers health-care services through phone and video consultations). And the confidence continues – Net inflows into exchange-traded ESG funds were $1.4 billion last week, according to Bloomberg data.
Second, thanks to the coronavirus pandemic, we are increasingly entering an era of investment uncertainty and economic turbulence. Against such volatile backdrops, value stocks tend to perform better than growth stocks. Some well known but now battered global giants are now available at forward price to earnings ratios of between 4 – 8 times, much cheaper than their emerging market rivals. Names like AT&T , Target , Intel , Dollar Tree , American Airlines , CVS , Bank of America and so on are being vociferously talked about in international investing blogs as value picks for the right moment.
For the more adventurous experts, the Decade Ahead in the US – rather than the next month- there is an abundance of evidence showing that secular growth themes within innovation are both powerful and resilient, even during crises such as the current pandemic- and that the innvoators with highest R&D – will continue to outperform broader markets. Evidence shows that such companies have delivered in excess of 100% per annum over a decade and there is persistency in innovation in the US. And the range of themes and opportunities are so vast that its mindnumbing!
Innovation therefore , given the crisis and its learnings, is no longer an asset class merely for super HNIs, but rather, in our opinion, should be a central component of equity allocation, thanks to the disruptive nature of these industries and the powerful tailwinds of the tech revolution. PL Vested brings this powerful investment opportunity right to your doorsteps now!
If you wish to do a little bit of research yourself, there is enough information on the internet with some very powerful screeners for what international funds and gurus are investing into like https://www.gurufocus.com/model_portfolio.php?mp=consensus
2020: The Ultimate Stress Test
As we were finalizing this blog, the pandemic was on an upward trajectory in India. The implications are still being understood- However, despite these unknowns, our investment teams continue to seek long-term opportunities and manage risk. Do stay in touch with us at advisorydesk@plindia.com
And yes, do remember that the PL Vested Account (https://pl.vested.co.in) is free for PL Clients. And if someone you know isn’t , for some funny reason, a PL Client yet, ask them to just go through a simple 10 minute account opening process at http://www.plindia.com / Open An Account!