India ETF’s outside India

by | Oct 1, 2019 | Learning Module 2, Topic 7: Exchange Traded Funds | 0 comments

Talking about the few ETFs that are available in India at present got me thinking about India ETFs available to investors overseas. Here is a reasonably complete list.

The total amount invested in these is about USD 10 billion, roughly half of what Indian investors have committed to ETFs. The ETF providers are many of the usual suspects.  iShares and iPath are names branded by Barclay’s Bank, one of the largest. Power Shares and Market Vectors are two others that are quite well known. As common in this business, all of them took one of MSCI’s 16000 indexes that I have mentioned elsewhere and created a product around it.  EGShares is one for which I could find little information. Based in Mauritius, apparently.

Two others warrant a mention. Wisdom Tree is one that I am personally familiar with. This is a shop which started decades earlier with well-known finance academics on their board, some still are. They manage over USD 37 billion in ETF money globally and are recognized for the care with which they construct their ETFs. Their India Earnings ETF has about $1.2 billion in AUM, the second biggest of the list above.

For their India ETF they did not just take an index from MSCI as some of the other providers in the list have done, but set about compiling their own. Minimum criteria for earnings, for listing, for trading volume are listed on their website – transparency is one of their hallmarks. As the name of the ETF suggests, their focus on the sustainability of earnings inspired them to even create their own modified capitalization weighting scheme for individual companies to make sure that they were getting the right mix of criteria in place for the Indian environment. So how have they done? The chart below shows that in the decade that they have been around, they are a little better than flat. While the Nifty has fared a lot better! !! Investing, even passive is not easy business for anyone, especially us.

The second India ETF is the Direxion Daily India Bull 3X. You may recall that I made fun of inverse and leveraged ETFS in general, warned you to stay away from them should they come to India. So,  I was surprised to find a Direxion version for India. As the name itself suggests, this is a bullish fund, with promised returns of 3X the underlying index. That underlying index is the MSCI India index which comprises about 80 large-cap and mid-cap Indian stocks which together account for about 85% of India’s universe. So reasonably comprehensive right? And again, how have they done. See below.

From its peak, somewhere in 2010, it is down about 60% in value !!! So what large and mid-cap stocks did they end up holding in this period? And not having a professional portfolio manager to get them out of trouble appears to have been costly for their clients- the ones with that $ 77.39 million AUM who are probably hanging on to their losers.