Nasdaq AI Selloff Hits Overseas Funds, US Tech Funds Fall 11%

Indian investors in overseas Mutual Funds are facing a sharp correction as concerns over Artificial Intelligence (AI) spending and technology valuations trigger a selloff in US markets. Several international equity schemes have recorded losses of more than 7% over the past month, with some US technology-focused funds declining by over 10%.

The weakness follows a sharp fall in the Nasdaq Composite on October 30. The index dropped 2.86% as investors reassessed whether major technology companies would generate sufficient returns from their substantial AI investments.

The market correction has also affected Indian mutual funds investing in overseas equities. However, the impact has varied considerably depending on each scheme’s Investment strategy, sector exposure and underlying holdings.

More Than 80% of Overseas Equity Funds Record Monthly Losses

An analysis of ACE MF data as of November 2 shows that 43 of the 52 overseas equity and equity-linked mutual fund schemes with available one-month returns were in negative territory. Only nine schemes recorded gains during the period.

This means more than 80% of the schemes covered in the analysis delivered negative one-month returns, highlighting the broad impact of the recent weakness in international equity markets.

However, the longer-term performance remains comparatively stronger. Of the 51 schemes with available one-year return data, 46 posted positive returns.

The contrast between monthly and annual performance shows how a sharp market correction can affect short-term returns without necessarily reversing the longer-term gains accumulated by investors.

US Technology Funds Among the Worst Hit

Funds with substantial exposure to US technology companies and Nasdaq-listed stocks experienced some of the steepest declines.

Motilal Oswal Nasdaq 100 Fund of Fund (FoF) fell 11.30% over one month, while Edelweiss US Technology Equity FoF declined 10.75%. Mirae Asset Global X AI & Technology ETF FoF recorded a loss of 8.43% during the same period.

Other Nasdaq-linked schemes from Invesco, Aditya Birla Sun Life, Kotak, Axis and Navi reported declines of approximately 7.5% to 7.8%.

The concentration of these funds in large US growth and technology companies has made them particularly sensitive to the latest reassessment of AI-related investment and earnings expectations.

Global Innovation Funds Also Face Pressure

The correction extended beyond funds directly tracking the Nasdaq 100. Several global innovation-focused schemes also recorded negative one-month returns, although the declines varied according to their investment strategies.

Axis Global Innovation FoF declined 6.94% over one month, while Kotak Global Innovation FoF fell 5.75%. DSP Global Innovation FoF recorded a comparatively smaller decline of 3.81%.

These funds generally follow broader innovation themes and may invest across different sectors and geographical markets. Their performance can therefore differ from that of funds concentrated in US technology companies or Nasdaq-linked indices.

Despite the recent weakness, all nine funds highlighted in the analysis remained positive over one year. Mirae Asset NYSE FANG+ ETF FoF, for example, delivered a one-year return of 27.29%, even after declining 5.11% over the past month.

Why Some US-Focused Funds Are Performing Better

The difference in returns among overseas mutual funds demonstrates that investing in the US market does not mean every scheme has the same portfolio exposure or risk profile.

Edelweiss US Technology Equity FoF declined 10.75% over one month, whereas Edelweiss US Value Equity Offshore Fund gained 2.81%. This represents a gap of 13.56 percentage points between two funds with different investment approaches.

A similar difference appeared in Navi’s overseas offerings. Navi Total Stock Market US FoF fell just 1.62%, compared with a 7.53% decline in Navi Nasdaq 100 FoF.

The variation largely reflects differences in portfolio construction. Nasdaq-focused schemes tend to have greater exposure to large growth and technology companies. Broader US market funds can spread investments across more sectors, while value-oriented funds follow a different approach to selecting stocks.

Consequently, the performance of an overseas mutual fund depends not only on the direction of the US market but also on the specific companies, sectors and investment themes represented in its portfolio.

AI Spending Concerns Drive the Nasdaq Correction

The Nasdaq Composite’s 2.86% decline on October 30 reflected growing investor concerns about the scale of investment in artificial intelligence infrastructure and the potential returns from that spending.

Major technology companies have committed substantial resources to areas such as data centres, computing infrastructure and AI development. Investors are increasingly examining whether the revenue and profits generated by these investments will justify the expenditure.

When expectations around future growth become uncertain, technology and growth stocks can face valuation pressure. Funds with concentrated exposure to these companies may experience sharper movements than broader equity portfolios.

The recent correction therefore highlights a key risk for investors who have gained exposure to overseas markets primarily through technology-focused mutual funds.

What Should Investors Consider Before Making Changes?

The latest losses underline that investing internationally does not automatically guarantee portfolio diversification. An Indian investor holding several overseas funds may still have significant exposure to the same US technology companies, particularly when the schemes follow similar indices or investment themes.

Investors should examine the underlying holdings of their funds to identify overlapping exposure and understand how much of their portfolio depends on a particular sector or group of companies.

The investment horizon is another important consideration. A short-term decline may not necessarily justify exiting a fund intended for long-term international diversification. However, investors should assess whether the scheme continues to match their financial goals and risk tolerance.

Currency movements also influence returns for Indian investors. Changes in the value of the US dollar against the rupee can affect the final rupee-denominated returns from overseas investments, alongside movements in the underlying stocks.

Investors should also distinguish between broad international exposure and concentrated thematic investments. A fund focused on AI or technology may offer exposure to a specific growth theme, but it can carry higher concentration risk than a scheme investing across multiple sectors.

Long-Term Returns Need to Be Viewed Alongside Risk

The fact that 46 of 51 overseas equity schemes with available one-year data remained positive suggests that the recent monthly correction has not erased all their longer-term gains. Nevertheless, past performance does not guarantee future returns.

The latest selloff serves as a reminder that strong historical returns can encourage investors to overlook concentration and valuation risks. Rather than reacting only to short-term losses or chasing funds with the highest previous returns, investors need to understand what they own and why those investments are part of their portfolios.

As uncertainty around AI spending and US technology valuations continues to influence markets, the performance gap between different overseas mutual fund strategies could remain an important factor for Indian investors to monitor.