Tuesday, October 27, 2009

Van Eck Global to Introduce Indian Small Cap Offering

Some great news for investors who can only buy domestic based product; after the successful launch of Van Eck Global Brazil Small Cap [Jun 2, 2009: Market Vectors Brazil Small Cap (BRF) - a New ETF for Exposure to Brazil] earlier this year, a similar product is now slated for India.  I am *very* excited about this as one of my pet peeves has been the lack of mid sized or even smaller type ADRs listed in US markets for either Brazil or India.  You can throw a dart and hit a Chinese small or mid cap, but have to dive under piles of hay looking for Brazilian / Indian needles.

No symbol yet but per IndexUniverse.com
  • Van Eck has registered with the SEC a new exchange-traded fund that provides investors with exposure to India’s smaller companies.  The Market Vectors India Small-Cap ETF will replicate the performance of the Market Vectors India Small-Cap Index.
  • The prospectus did not list fees for the fund, although it did point out some of the risks: The new fund will invest in the more volatile side of India’s already volatile equities market, holding small-cap names with limited liquidity. Still, India has been a hot market for investors over the past year, and the new small-cap fund is likely to appeal to some.
  • Van Eck has been targeting small-cap international as a new area for growth. Its Market Vectors Brazil Small-Cap ETF (NYSEArca: BRF) has nearly $520 million in assets.
  • There are three India-focused exchange-traded products on the market. The PowerShares India (PIN) ETF and the iPath MSCI India Index ETN (INP) both focus on large-cap companies. They have tallied returns year-to-date of 71.6 percent and 90.6 percent, respectively, according to Morningstar.  The WisdomTree India Earnings Fund (EPI) dedicates nearly 20 percent of its portfolio to mid-caps, with the remainder being primarily large- and giant-cap offerings. The fund has posted year-to-date returns of some 88.2 percent.
We were huge proponents of the Brazilian Small Cap fund (our only mistake was not buying it in June!) because the only comparable index product was a large cap offering that was extremely exposed to 2 companies - Petrobras (PBR) and Vale (VALE).  Excellent companies, but if I want them I can go buy them... the small cap ETF is a lot more consumer oriented and offers countless stocks we can not buy here.

In the Indian space - there are now 3 major ETFs (ETNs) which were an improvement over the 2 closed end funds I traded for years - in fact we used the archaic 'The India Fund' here in our portfolio in 2007 and early 08.  [Mar 6, 2008: 2 New ETFs for "Indian Bugs"]  Reading that post in March 08, I had the same complaints then I have now.

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 3 newer ETFs are generally very heavy on large caps and we see the same name over and over - Reliance Industries, Infosys, etc.  In fact all 3 of the newer ETFs / ETNs  have those 2 companies at a (roughly) combined 20% of the instrument - so that's like buying GE and IBM as 1/5th of your exposure to the US.

There are even less Indian companies on US exchanges than Brazilian - we've simply been using the 2 major banks (HDB, IBN) as our exposure... with an occasional foray into base metals stock Sterlite Industries (SLT).  Aside from the "IT / outsource companies" I don't think there are more than 10 other Indian stocks available. 

This is a very good move - and we'll see if the small caps (over time) diverge from the larger caps; generally more growth (and risk) should come on the lower end of the size scale.  Last I checked on how the 2 Brazilian ETFs were doing, the newer small cap had been trouncing the large cap.

On a side note, India has been acting a little tired lately - as with Brazil I'd really like to see some correction after a huge run in 2009.  Maybe we can only ask for pullbacks to the 50 day moving averages in this era of central bank largess.

Long HDFC Bank in fund; no personal position

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