A China, India ETF that is actually going up

Growth is slowing in these two countries but is still well above what investors will find in much of the developed world.

By Benzinga Aug 6, 2013 2:16PM
copyright Brooklyn Production, CorbisBy The ETF Professor

There are plenty of nasty statistics that paint ugly pictures of just how much many China and India ETFs have struggled this year.

When it comes to India ETFs, some of the group's most popular funds are battling with their Brazilian equivalents for the ominous honor of worst-performing BRIC ETFs.

Last month, several of the 10 worst-performing, non-leveraged ETFs were India funds. The most popular China ETFs have been no place to hide either. For example, the iShares China Large-Cap ETF (FXI) is one of the 10 worst ETFs this year in terms of outflows (Benzinga).

Investors have pulled over $2.3 billion from FXI, according to BlackRock data. With those struggles in mind, it might seem impossible that a combination China/India ETF could be enjoying a respectable 2013, but that is exactly what the First Trust ISE Chindia Index Fund (FNI) is doing.

FNI, which has been around for over six years, selects "the top 25 stocks from each country by liquidity score. If less than 25 stocks are available for a country, then continue selecting stocks from the other country until a maximum of 50 stocks are selected," according to First Trust. From there the top three stocks from each country receive allocations of 7% apiece and the next three get weights of 4% each.

Currently, Baidu (BIDU), FNI's largest holding, has a weight of nearly 9%. Investors looking to get to the bottom line will be interested to know that FNI is up nearly 11% year-to-date and has surged 13.4% in the past month.

Part of the reason for FNI's durability relative to other China and India ETFs this year could be attributable to investors still believing in the emerging markets consumer. Rapid growth Asia-Pacific markets are expected to see their share of global consumption jump to 25% by 2020 from 14% in 2010, Ernst & Young said last year (Benzinga).

Growth is slowing in China and India, there is no doubt about that, but there is also no doubt the rates of growth in those countries are still well above what investors will find in much of the developed world. As for believing in the emerging markets consumer, other ETFs suggest investors are doing that. The Global X China Consumer ETF (CHIQ) is up 9% in the past month. 

Another reason that explains FNI out-performance of more mainstream China and India ETFs this year is the fund's almost 42 percent weight to the technology sector. That is one group that could benefit from the weak Indian rupee. More importantly, ETFs with significant exposure to Chinese tech names (Benzinga) have been the shining stars of the China ETF group this year. Fourteen of FNI's 50 holdings are Chinese technology or Internet stocks, including Baidu, Sina (SINA) and Ctrip.com (CTRP).

FNI has also been getting a lift from Michael Kors (KORS). That company is based in Hong Kong, making it eligible for inclusion in FNI at a weight of 7.1%. That is good news because the stock is up 33.6% year-to-date.

Oh wait, there is something the critics could say about FNI, that being the ETF has less than $100 million in assets under management (Benzinga). Due to that, investors should stay away is the advice naysayers would be apt to give.

Figure it this way: FNI has $61.8 million in assets and has posted a double-digit gain this year. The largest China and India ETFs have over $6 billion in AUM combined and are down 11.3% and 19.8%, respectively.


More from Benzinga
Aug 6, 2013 4:47PM
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