India Small Cap ETFs Back on Track? - ETF News And Commentary
November 01 2013 - 12:00PM
Zacks
Investor sentiment towards
emerging markets finally reversed after the surprise delay in QE
tapering by the Fed. These markets are now showing clear signs of
recovery and investors are trying to reap returns from their
current depressed share prices (read: Can These Emerging Market
ETFs Continue to Outperform?).
One such market that has shown a sharp recovery is India, thanks to
a slew of measures taken by the new RBI Governor, strengthening
rupee and foreign capital inflows.
Inside the Recent Surge
The Asia’s third largest economy is trying to liberalize its
financial markets in an effort to attract more foreign investors.
In addition, India is in talks to enter into the emerging markets’
bond indices.
The Indian currency has shown a surprising comeback with
double-digit gains after hitting a record low of around 69 per
dollar during the month of August. In fact, the rupee was the best
performing currency in September, outshining other major global
currencies (read: Play Rising Rupee with These Two ETFs)
This strength was buoyed by RBI measures that allow banks to swap
dollars received in foreign currency deposits for rupees and double
the money that banks can raise through overseas bonds, which can
also be swapped for rupees.
Improving fundamentals and a solid currency rebound have been well
received in the markets and Indian stocks have given impressive
performances over the past month. In fact, India ETFs have been the
best performer among all the emerging Asia Pacific funds over the
trailing one month.
While this is true for all cap securities, small caps surged higher
than their large cap counterparts. Below, we take look at the three
ETFs, which track the Indian small cap market.
All of these funds offer exposure to pint-sized securities in the
nation and while they will likely see more volatility, they could
see better returns should the current trend continue as we move
ahead toward the end of the year (see: all the emerging Asia
Pacific ETFs here).
EGShares Indxx India Small Cap Fund (SCIN)
This fund tracks the Indxx India Small Cap Index, and is unpopular
and illiquid with just $18.2 million in AUM. It has an expense
ratio of 0.85%. With a holding of 76 securities, the product is
heavy on financials with one-fourth share, while consumer goods,
industrials and healthcare also get double-digit allocation in the
basket.
Apollo Hospitals, Mahindra & Mahindra and Aditya Birla Nuvo are
the top three elements in the basket with a combined 14.86% of
assets, suggesting decent exposure in terms of individual
holdings.
The fund gained nearly 8% over the trailing one month but is down
28.7% in the year-to-date period. (read: India ETFs After the
Surprise Rate Hike).
Market Vectors India Small-Cap Fund (SCIF)
This fund tracks the Market Vectors India Small-Cap Index, holding
95 securities in its basket. The ETF has amassed $94.8 million in
its asset base and charges a high fee of 91 bps a year from
investors.
Though the product has a slight tilt toward the top firm - MindTree
– at 5.13% of SCIF, it is pretty spread across other securities.
None of the securities hold more than 3.8% share. From a sector
look, consumer discretionary and financials take the top two spots
with 22% share each while information technology (17.1%) and
industrials (15.9%) make up for the next two spots.
While the ETF delivered a negative return of 38%, it added 8.75%
over the past month on recent optimism in the nation.
iShares MSCI India Small Cap Index Fund (SMIN)
This product follows the MSCI India Small Cap Index and holds 158
securities in its basket. The ETF has accumulated $2.8 million in
total assets and charges 74 bps in fees per year.
The product is well diversified across individuals as each security
holds less than 3.2% of total assets. Here again, consumer
discretionary is the top sector with 19.35%, followed by financials
(18.95%), industrials (17.10%) and materials (13.67%).
The fund is down 25% year-to-date while gained over 9.5% over the
trailing one month (read: India ETFs Rebound on Central Bank
Steps).
Bottom
Line
Though the short term looks promising on various stimulus measures,
the long-term outlook might be gloomy given high current account
deficit and stubborn inflation. However, growth in India is still
the highest in the world thanks to the country’s rising middle
class, a younger population and growing spending power that is
boosting domestic consumption.
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MKT VEC-INDI SC (SCIF): ETF Research Reports
EMERG-GS INDIA (SCIN): ETF Research Reports
ISHARS-M IND SC (SMIN): ETF Research Reports
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