It's an Indian summer for ETFs

The action in exchange-traded funds investing in India started heating up the day after Labor Day. Since then, the funds have had a 28% run that erased most of the losses they'd suffered this year, while the broader emerging markets are up 10%. ETF investors who want to amp up their exposure to India have options ranging from a broad basket of mostly large-cap stocks to a far-riskier bet focusing on small-caps.
DEC 12, 2013
By  ntappan
The action in exchange-traded funds investing in India started heating up the day after Labor Day. Since then, the funds have had a 28% run that erased most of the losses they'd suffered this year, while the broader emerging markets are up 10%. ETF investors who want to amp up their exposure to India have options ranging from a broad basket of mostly large-cap stocks to a far-riskier bet focusing on small-caps. The rally began when Raghuram Rajan was appointed the new governor of the Reserve Bank of India. Mr. Rajan, a former economist at the International Monetary Fund, has a modern vision for India's economic future. He's taken steps to curb inflation, one of the India's biggest problems, including an interest rate increase that helped stabilize the currency. The market's reaction to Mr. Rajan calls to mind the 16% rally in Japanese stocks after the election of Prime Minister Shinzo Abe last November. Both men are respected by investors, but have very different problems to solve, notes Jeremy Schwartz, director of research at WisdomTree. Abe is wrestling with deflation. Many investors can get, or may already have, a stake in India through one of the popular emerging-markets ETFs, which usually have a 5% to 8% allocation to the country. For example, the new $2.8 billion retail-oriented iShares Core MSCI Emerging Markets ETF (IEMG) has a 6% allocation to India. The bigger global ETFs have a smaller exposure. The $2.8 billion Vanguard Total World Stock ETF (VT) has a 1% allocation. This small exposure may suffice for many investors. For investors comfortable with more single-country risk, there are 13 India-focused ETFs from which to choose. The oldest and most popular is the WisdomTree India Earnings ETF (EPI), which has $1 billion in assets and has been around since 2008. It is also the broadest, covering 170 stocks — mostly large-caps, with some exposure to mid- and small-caps. The ETF chooses companies based on profitability and then weights them based on fundamentals. It charges an expense ratio of 0.84%. The iShares MSCI India ETF (INDA), the fastest-growing India ETF, with $400 million in new cash this year, is another possibility. It's the cheapest India option, with an expense ratio of 0.67%. It's a shock to think that such a high ETF expense ratio is the cheapest of all the India ETFs. When it comes to investing in locally traded shares in more exotic areas of the world, it's harder to provide exposure, so higher fees are more commonplace than in, say, U.S. equity ETFs. And 0.67 percent is about half the expense ratio charged on the average mutual fund. An option for the really daring investor is the EGShares India Small Cap Fund (SCIN). It is run by Emerging Global Advisors, a shop that specializes in emerging markets. This ETF mostly will have higher highs and lower lows than broad-market India ETFs. For example, since Labor Day, it is up 33%, while EPI and INDA are up 28% and 26%, respectively. It has $19 million in assets and trades just 16,000 shares a day, so be cautious when trading it. Investors are well-advised to use a limit order to avoid unnecessary trading costs with ETFs. (Bloomberg News)

Latest News

JPMorgan tells fintech firms to start paying for customer data
JPMorgan tells fintech firms to start paying for customer data

The move to charge data aggregators fees totaling hundreds of millions of dollars threatens to upend business models across the industry.

FINRA snapshot shows concentration in largest firms, coastal states
FINRA snapshot shows concentration in largest firms, coastal states

The latest snapshot report reveals large firms overwhelmingly account for branches and registrants as trend of net exits from FINRA continues.

Why advisors to divorcing couples shouldn't bet on who'll stay
Why advisors to divorcing couples shouldn't bet on who'll stay

Siding with the primary contact in a marriage might make sense at first, but having both parties' interests at heart could open a better way forward.

SEC spanks closed Osaic RIA for conflicts, over-charging clients on alternatives
SEC spanks closed Osaic RIA for conflicts, over-charging clients on alternatives

With more than $13 billion in assets, American Portfolios Advisors closed last October.

William Blair taps former Raymond James executive to lead investment management business
William Blair taps former Raymond James executive to lead investment management business

Robert D. Kendall brings decades of experience, including roles at DWS Americas and a former investment unit within Morgan Stanley, as he steps into a global leadership position.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.