Diversifying an investor’s portfolio with a global portfolio can help in balancing the market volatility and potentially boost returns while aligning your portfolio with your dollar-based spending for long-term wealth creation.

PMS Bazaar conducted its second edition of the Dubai Alternative Investment Summit (DAIS) in Dubai on February 17, 2024. As part of this event, the company invited various industry experts to share their insights on the Indian alternative industry. One such popular expert, Saurabh Mukherjea, founder and CIO of Marcellus Investment Managers, presented a compelling argument for diversification. That is, he laid out the benefits of incorporating global assets with an Indian portfolio. His topic on the event day was: Investing in India using quant strategies for sustainable alpha.

Saurabh Mukherjea of Marcellus Investment Managers introduced the concept of "Double Engine Compounding," highlighting the potential for superior returns and risk management by investing in both domestic and developed markets. This is because a significant portfolio, nearly 50-60%, of the spending happens in dollars. So, if an individual earns and saves in the local currency (Dhiram or Rupee) but spending happens in dollars, this, he said, creates an asset-liability mismatch. As a result, he said, it necessitated diversification beyond domestic markets to hedge against rupee fluctuations and capitalise on global growth opportunities.

Double Engine Compounding 

He emphasised that the Indian equity market had been the best-performing market in the past and is expected to continue the bull run going forward as well. However, he explained that the US market has historically dominated over 30 years. The key, he said, was in the low correlation between the two markets. He pointed out that the two countries account for 60% of wealth creation globally. So, combining these two distinct markets can significantly enhance risk-adjusted returns and provide valuable diversification benefits.

Data presented by Mukherjea demonstrated how a balanced 50-50 allocation between US and Indian equities over 20 years would have outperformed either market. He stressed that to create wealth for the long term, diversifying a portfolio effectively is crucial.

However, venturing into global investments comes with its own set of hurdles. Mukherjea acknowledged the challenges, including high minimum investment requirements, complex tax implications, and limited access to successful US funds for Indian investors. He then explained about the Global Consistent Compounders (GCP) fund launched on GIFT IFSC.

Mukherjea showcased GCP's ROIC (return on invested capital) and its ability to outperform the S&P 500, even during challenging market conditions such as the CY of 2023. He also narrated three different case studies on three companies – ASML, Microsoft and Hermes that are a part of GCP’s portfolio. His presentation indicated the approaches to stock picking for investors. Though this was explained keeping in the context of GCP, there are three themes to categorise the stocks: pick and shovel, utility, and consumption. These themes represent sectors poised for sustainable growth, and dominance in their respective markets, providing a solid foundation for the fund's performance.

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