ETFs venture into India

These funds give you access to one of the world's fastest-growing economies.

By TheStreet Staff Nov 3, 2010 9:03AM

cash globe © PhotoAlto/SuperStockBy Don Dion, TheStreet


Investors' desire for equity exposure beyond the shores of the U.S. and other developed markets has led many ETF providers to launch funds aimed at emerging markets. One popular destination for these sponsors has been India.


India has expanded to become one of the dominant emerging economic forces in not only Asia but the world. This week, the nation generated a flurry of positive economic news, including a strong manufacturing report. Noticing the impressive strength of India's economy, the Reserve Bank of India raised rates for the sixth time in 2010.


Companies such as Van Eck, WisdomTree, PowerShares, and BlackRock (BLK) have jumped on board with respective products aimed at tracking this fast-growing nation.

The WisdomTree India Earnings Fund (EPI), the PowerShares India Portfolio (PIN) and the iShares S&P India Nifty 50 Index Fund (INFY) are take a relatively plain-vanilla approach to tracking the Indian economy. The indexes underlying these funds are composed of the largest and most liquid Indian companies, giving investors exposure to the most influential components of the Indian economy.

EPI, PIN, and INDY share a number of holdings, including Reliance Industries, Infosys (INFY), Oil & Natural Gas Corp., and HDFC Bank (HDB).


I consider these funds to be good options for conservative investors seeking exposure to India. However, with 142 positions, versus the 50 underlying PIN and INDY, EPI is my personal choice for seeking the most stable, well-diversified exposure to the Indian economy.


Aside from these funds, there are a number of niche plays investors can consider when seeking India exposure.


Whereas EPI, PIN and INDY track the largest and most prominent members of the Indian economy, Van Eck's Market Vectors India Small Cap ETF (SCIN) takes the opposite approach by tracking the nation's smallest publicly traded companies.


Like the firm's Market Vectors Brazil Small Cap ETF (BRF), the theory behind SCIN is that by taking a small-cap approach to India's economy, investors can gain access to the companies most influenced by the nation's domestic population.


Among Emerging Global Shares' growing line of sector specific emerging market funds is the EGShares INDXX India Infrastructure Fund (INXX). Designed to capture the economic development potential of India, INXX tracks companies responsible for constructing the roads, bridges and electrical infrastructure needed to propel India into the 21st century.


Both SCIN and INXX are relatively new to the market and will take some time before they can be considered properly liquid.

One of the more unique ways investors can gain access to India is through the First Trust ISE Chindia Index Fund (FNI).


Using this fund, it is possible to combine exposure to China and India under one roof. Unlike traditional BRIC funds which usually underweight India and overweight China, FNI attempts to split exposure between the two nations equally. As I highlight in this morning's video, this strategy has paid off well recently. Over the past 30 days FNI has managed to outperform globally concentrated funds such as EPI and iShares FTSE/Xinhua China 25 Index Fund (FXI).


Although they can be more risky than domestic equity and fixed-income ETFs, products that track emerging markets such as India and China offer a great chance for investors to venture beyond domestic equities into popular foreign regions of the globe.


Conservative investors would benefit from setting aside a small portion of their diversified portfolio for a fund such as EPI or FNI.


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