Equity mutual funds investing in shares of technology companies based in the US have delivered handsome returns for investors in the last few months. These funds have gained in excess of 40% in the last one year, which is among the best in equity MF schemes. Only a few equity categories such as the mid-cap and small-cap MFs have done better than these funds.
Their outperformance is largely due to the strong showing by global technology giants such as Meta (formerly Facebook), Nvidia, Microsoft and Alphabet (formerly Google) on the US bourses. These stocks are the best performers in the US markets having posted stellar returns due to their strong earnings growth amidst the ever-increasing potential that they hold in the fast-emerging space of artificial intelligence (AI).
While the Nvidia scrip has zoomed 612% in the last one year, Meta has jumped by 226.3% during the timeframe. The Microsoft scrip has vaulted 101.9% in the past one year, which was followed by Alphabet that gained 43.5% and Apple that gave 14.7% returns.
Mirae Asset NYSE FANG+ETF, the top performer among equity MFs investing in overseas markets with a solid return of about 59% in the last one year, has more than 50% exposure to the shares of Meta, Nvidia, Alphabet, Apple and Microsoft.
Mirae Asset NYSE FANG+ETF has outperformed the BSE-500 TRI (Total Returns Index) by nearly 22% in the one-year timeframe. Motilal Oswal NASDAQ 100 ETF, another fund in the space, has emerged as a stellar performer by surging nearly 41% in the last one year. This fund’s exposure level to shares of US technology giants is quite similar to that of Mirae Asset NYSE FANG+ETF.
While Kotak NASDAQ 100 Fund has posted about 40% gains in the past year, Navi NASDAQ 100 Fund has seen a nearly 39% increase, data with Value Research, a firm that tracks MFs, showed. All the funds are part of the international equity MFs category that has registered a growth of 22.7% in the one-year timeframe. Despite the strong surge in the scrips of Nvidia, Meta and Microsoft, the returns from these funds were impacted by the tepid showing of Apple and Alphabet.
“Technology (sector) will not go away. After Covid, we saw a little bit of saturation in these companies. But AI (Artificial Intelligence) came in place and created a fresh growth cycle,” says Anil Rego, founder and CEO, Right Horizons, a Bengaluru-based wealth management and PMS (Portfolio Management Services) firm.
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“The technology sector cannot be wished away. But it is better to stagger investments in such theme-based mutual funds,” says Suresh Parthasarathy, financial planner, partner, Fouress Finserv LLP, a Chennai-based mutual fund distributor firm.
Though the performance of these MFs has been quite good, they come with risks, say financial advisors and experts. “The risks are quite steep in these funds as they focus exclusively on a particular sector,” advisors say.
“The current technology boom in the US has lasted for a reasonably long period of time. But wherever there is continuing growth, the percentage of growth would come down at some point,” Rego says.
“The US markets are at a high and the valuations are quite rich. The chances of a slowdown are pretty much there,” Suresh says. “We are cautiously optimistic and the downside risks are very much there,” Rego explains.
Allirajan M is a journalist with over two decades of experience. He has worked with several leading media organisations in the country and has been writing on mutual funds for nearly 16 years.
