Thursday, March 6, 2008

2 New ETFs for "India Bugs"

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For those of us "India bugs" out there, we've had very limited choices to invest in India. Due to a lack of individual companies listed on US exchanges I've been using The India Fund (IFN), which is a closed end fund - the other alternative is an ETN (Exchange Traded Note) called iPath MSCI India (INP) which has had some massive tracking errors since India changed some regulations (ironically to reduce foreign investments) a few months ago. Neither is a great vehicle, but IndexUniverse.com let's us know that now we have 2 more instruments which seem interesting
  1. Powershares India (PIN)
  2. WisdomTree India Earnings (EPI)

Despite the higher expense fee and similar top 10 holdings, I think the latter might be a better balance to my current holdings because I hold the main 2 financials (banks) in India, which do trade in the US - I also like more exposure to Materials and less to Info Tech which I have been bearish on for quite a while due to increase in salaries and strength of the currency in India. So I'll keep an eye on both and might switch into 1, and sell off my long held (but currently tiny weighting) India Fund down the road. Marketocracy.com does not yet offer either new ETF as a choice so I can't buy either if I wanted to at this point...

I'd also like to see more ETF choices for Brazil...

India is going through a quite serious correction right now and I'd like to see some more downside but it is getting more attractive by the day. We are now approaching lows from last fall, but I'd like to see something that really drives a stake through the heart of "decoupling", and cause a panic. With that said, I've been quite fortunate with my timing in these countries [Dec 11: China vs India the Past 2 Months]

  • PowerShares may not be the first to market with its latest product, but it's coming in a relatively close second. The PowerShares India Portfolio is set to start trading today on the NYSE Arca exchange under the symbol PIN. It tracks the Indus India Index of 50 companies selected from a universe that includes the stocks traded on the National Stock Exchange and the Bombay Stock Exchange
  • In late February, WisdomTree won the race to bring the first exchange-traded fund covering India to market when it launched the WisdomTree India Earnings ETF (NYSE Arca: EPI). The fund tracks an earnings-weighted index of 150 Indian companies that has been adjusted to account for the restrictions on foreign investment imposed by the Indian government.
  • Until the WisdomTree launch there was no ETF that tracked just that country's stock market—investors in exchange-traded products had to get exposure through emerging markets ETFs tracking multiple countries or through the iPath MSCI India ETN (NYSE Arca: INP), which has been experiencing significant tracking error in the wake of new restrictions on foreign investment. Both new India ETFs take into account those restrictions.
  • Although the sector distributions vary quite a bit, both have Energy as their largest sector, at 23.05% for EPI and 25.21% for PIN. The ETFs also hold seven of their top 10 components in common: Reliance Industries, Infosys Technologies, Reliance Communications, Oil & Natural Gas Corp., Bharti Airtel, Housing Development Finance Co., and ICICI Bank.
  • Not surprisingly, PowerShares—as the second to launch—has undercut the annual expense ratio of WisdomTree's India ETF, charging 0.78% versus EPI's 0.88%. The 10-basis-point gap in the expense ratios will surely make a difference in attracting investors, especially with the similarities in the indexes. However, EPI holds roughly 100 more companies than PIN, so some investors may be drawn to its broader scope. Another determining factor will be weighting methodology, as EPI's weightings are based mainly on earnings, while PIN's are based mainly on the amount of investable market capitalization available to foreign investors.

You can see the weightings by sector for both instruments here

Long India Fund in fund; no personal position


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