Pinpoint Exposure ETFs: India

Nathaniel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

If you are looking to spice up your portfolio with a few emerging market exchange traded funds you are in the right place. In this article I focus in on India specifically as recently the country has been a hot area for investment. Foreign institutional investment came in over $20 billion in 2012 which is the second highest calender year number since 1993. The inflows were helped by global quantitative easing which caused higher investment into emerging markets. This institutional investment should continue as quantitative easing doesn't appear to be going anywhere anytime soon as the set goals have not been reached. India has a much lower per capita income than most major Asian countries which leaves more room for economic expansion as incomes rise. Also, the economy has remained relatively strong throughout the political and social trouble. Lastly, the rupee has declined against the dollar making the Indian markets attractive as the dollar strengthens. Below, I will introduce four exchange traded funds that offer investors exposure to infrastructure, the consumer space, large-caps, and small-caps.

EGShares India Infrastructure Fund

The EGShares India Infrastructure Fund (NYSEMKT: INXX) would be perfect for investors looking for exposure to the expected $1 trillion in infrastructure spending over the next five years. The fund seeks to replicate the performance of the Indxx India Infrastructure Index. The fund is composed of 30 different holdings with an average market capitalization of $8.41 billion. The current sector breakdown is as follows:

Sector

% of Fund

Industrials

36.30

Utilities

26.21

Basic Materials

13.57

Telecommunications

10.08

Financials

7.32

Oil & Gas

4.98

Consumer Services

1.54

With the INXX you will receive exposure to metal miners, energy and power, utility, transportation, and water companies. The current industry breakdown is as follows.

Industry

% of Fund

Electricity

23.34

Construction & Materials

20.57

Industrial Metals & Mining

13.57

Industrial Engineering

12.94

Mobile Telecommunications

10.08

Real Estate Investment & Service

7.32

Oil & Gas Producers

4.98

Gas, Water & Multiutilities

2.87

Industrial Transportation

2.79

The infrastructure sector in India should perform very well as incomes in the country rise. With such a large population, India will need to strategically plan the expansion of the much need infrastructure. 

EGShares India Consumer Fund

The EGShares India Consumer fund (NYSEMKT: INCO) was designed to reflect the performance of India's consumer sector. The fund seeks to replicate the performance of the Indxx India Consumer Index. The fund is composed of 30 different holdings with an average market capitalization of $7.04 billion. The current industry breakdown is as follows:

Industry

% of Fund

Personal Goods

21.18

Food Producers

18.05

Beverages

13.62

Media

13.15

Industrial Engineering

8.93

Automobiles & Parts

8.53

Travel & Leisure

7.55

Tobacco

5.38

Leisure Goods

1.59

General Retailers

1.04

Household Goods & Home Construction

0.97

Be aware that India's annual consumer price inflation is above 10 percent which above its emerging market peers. Food prices are also rising at a rate over 13 percent which could put pressure on middle class spending. As incomes rise, the country's consumer sector should experience higher returns due to consumers having more discretionary income.  

iShares S&P India Nifty 50 Index Fund

The iShares S&P India Nifty 50 Index Fund (NASDAQ: INDY) is composed of the largest 50 Indian stocks by market capitalization. The fund seeks to replicate the performance of the S&P India Nifty 50 Index. The current industry breakdown is as follows:

Industry

% of Fund

Banks

20.85

Software

12.62

Refineries

8.55

Cigarettes

8.25

Housing

6.57

Pharmaceutical

4.94

Engineering

4.41

Oil Exploration

4.14

Passenger Vehicles

3.24

Commercial Vehicles

2.97

Other/Undefined

23.48

On a valuation basis, the INDY is expensive compared to its emerging market counterparts. The current price-to-earnings ratio is 29.60 and the price-to-book ratio is 5.31. The fund is also quite volatile with a beta vs. S&P 500 of 2.11. The current expense ratio is 0.92%. I believe we will continue to see strong returns in the broader Indian markets as money remains inexpensive and hungry for a place to work. Last year the markets were very strong, however, this was not the case in the years prior which leaves more possible room to the upside this year. 

iShares MSCI India Small Cap Index 

The iShares MSCI India Small Cap Index (NYSEMKT: SMIN) is composed of 141 Indian companies with low market capitalizations. The fund seeks to replicate the performance of the MSCI India Small Cap Index. The current sector breakdown is as follows:

Sector

% of Fund

Financials

28.27

Consumer Discretionary

15.37

Industrials

14.47

Materials

10.92

Health Care

9.69

Consumer Staples

8.07

Utilities

5.84

Information Technologies

5.84

Energy

1.38

On a valuation basis, the SMIN is less expensive than its large-cap counterpart INDY. The price-to-earnings ratio is 24.39 and the price-to-book ratio is 3.17. The current expense ratio is 0.74%. Similarly to the INDY, I see high returns ahead as we continue to see broad market inflows due to quantitative easing. 

 

If you have any questions about any of the funds mentioned above please let me know!


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