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Investing abroad? What are the risks?

23 March, 2022

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Geographical diversification helps retain a balance in earnings when the financial market in India is depressed. Historical data shows that while India equities tend to outperform in an uptrend, when there is bearish sentiment, they almost always fall much more than Europe- and US-based equity indices. By having exposure to the latter, you can smoothen out some volatility in returns Know More.

As Wall Street and Dalal Street start to tally the market damage triggered by Russia’s invasion of Ukraine, a big bond fund run by Franklin Resources Inc. is emerging as an early loser Read More. The Western Asset Core Plus Bond Fund, with $37 billion of U.S. mutual fund assets, declined more than 8% this year and about 3% since the conflict began. The losses, spurred by investments in Russian securities, have made this fund one of the worst-performing funds in the category.

Heading into this year, the U.S. fund had $484 million in Russia bonds, representing 1.2% of its total assets. Those positions were marked down by more than half to $194 million as of Feb. 28, trailing its benchmark index by more than 3 percentage points this year. The positions are projected to decline further after additional sanctions and restrictions are placed on Russia.

Franklin’S Funk

Russian investments have saddled fund with losses

Western Asset Core Plus has underperformed largely because of its higher allocation to emerging markets, including Russian local debt and the Russian ruble, and “it’s much longer duration” as rates rose in early 2022.

The fund decline shows how the invasion continues to ripple across financial markets, with some of the biggest money managers halting trading in exchange-traded funds and index providers excluding Russian securities from benchmarks used by investors worldwide.

Another hedge fund suffered big losses after it reportedly increased its bet on Russian stocks right before the invasion of Ukraine.
'We believe the risk/reward of being long Russian equities is favorable relative to the risk we see of conflict,' -BlackRock hedge to clients before the Ukraine invasion.
A BlackRock hedge fund suffered big losses for its clients in February after the fund increased its wager on Russian stocks just before the country invaded Ukraine, according to a Bloomberg report.

The BlackRock Emerging Frontiers Fund lost more than 10% in value last month. The plunge stung even more for the hedge fund given that its Russian stock bet was already a loser in January, before it increased its exposure to the country.
The hedge fund's bet on Russia stocks accounted for about 9% of its total gross assets, and the positions have since been written down to zero.
The fund, which managed $960 million at the end of January, was down about 7% so far this year, according to the report.

Another hedge fund suffered big losses after it reportedly increased its bet on Russian stocks right before the invasion of Ukraine.
'We believe the risk/reward of being long Russian equities is favorable relative to the risk we see of conflict,' -BlackRock hedge to clients before the Ukraine invasion.
A BlackRock hedge fund suffered big losses for its clients in February after the fund increased its wager on Russian stocks just before the country invaded Ukraine, according to a Bloomberg report.
The BlackRock Emerging Frontiers Fund lost more than 10% in value last month. The plunge stung even more for the hedge fund given that its Russian stock bet was already a loser in January, before it increased its exposure to the country.
The hedge fund's bet on Russia stocks accounted for about 9% of its total gross assets, and the positions have since been written down to zero.
The fund, which managed $960 million at the end of January, was down about 7% so far this year, according to the report.

Many investors and advisors talk country risk diversification. But the other burning issues in those geographies? We know India best and USA (mother market), which influence the Indian Sensex. It is better to do what we know, can see and experience than take unknown risk for returns.

Having said that, if you don’t include enough risk in your portfolio, your investments may not earn a large enough return to meet your goal. Portfolio diversification is achieved by investing across asset classes, across fund management styles, across time, & even across geographies. But most importantly they will be derived from the asset allocation master plan which is in turn derived from the financial plan which is dependent on the financial goals that you have set. Have you spoken to certified planners to take their view on what kind of portfolio diversification you will require?

We urge you to have conversations with financial advisors who have seen and navigated these cyclical rises and falls. They are in the best objective position to help you understand and mitigate the risks of letting emotion get the better of you.