It looks like WisdomTree is going to list its India ETF this Friday with ticker EPI. It is weighted by earnings not dividends.
Information on the index is posted here (the link may not work). The funds is weighted 25% to energy and 15% to materials with Reliance Industries have the largest, by far, weighting of 13.56%.
The more widely known names from India are Satyam, Wipro and Infosys yet "Software and Services" are only 11.51% of the index.
I'm not sure I would intuitively think India would be 40% resources but I guess that's where the earnings chips fall.
India is a relatively complicated investment destination. A few clients own one of the closed end funds and have owned it for a while (but I did shave some off along the way). I have no real complaints with the fund but have never loved it either.
When we were earlier in the stock market cycle I was comfortable holding both China and India across the board but not so later cycle. I sold my Chinese stock last (I believe) June and as I said only some clients have India. If I had to choose between China and India for the long term (and to be clear my zero China is more of a short term tactical position than anything else) I would probably prefer China but I do concede the bullish case for India is compelling.
Back to the ETF if you are inclined to own it I think you need to factor in the energy, and materials weighting of the fund into the rest of what you own. Most country funds are heavy in something. A 5% weight in EPI adds 125 basis points to whatever else you have going on in energy.
This is a big thing with country funds. That a country fund is overweight something is neither a positive or a negative it just is so it is crucial to be cognizant of this issue and take steps to make sure you end up with the sector weightings you want.
The problem seems generally more prevalent with the financial sector. Many different types of funds have more than 25% in financials. I've written about a lot of WisdomTree funds for TSCM and always include the same caveat about bad news for the financial sector being bad news for the fund.
So with EPI, among other things, weakness in energy stocks will probably hurt the fund and I doubt a rebalance would bail the fund out because energy prices could probably come down a fair bit and still keep the sector on top of the Indian earnings heap.
We are headed back to Arizona on Wednesday after the close.
Wikinvest Wire
8 comments:
All good points, but doesn't the new wisdom tree fund mean India has already peaked this cycle?
Might be a good fund for the future though assuming it tracks well.
seg
OT question--Looks like the US is seeing increased inflation and perhaps a period of stagflation ahead, Roger. While it's not rampant, I don't recall you commenting recently on inflation. Do you give it any weight in your top down approach to portfolio construction?
Thanks very much.
seg your comment is correct sometimes, the first silver ETF as an example that comes to mind.
but there are also examples where that has not been the case, the steel etf as an example among others.
point being product development may not be the best indicator. i would note india is down almost 20% from its high.
as far as inflation determining portfolio decisions; i view inflation as more of a symptom that may or may not moves stocks over an intermediate term--so more of a part of the equation as opposed to the determinant.
If we devolve into a repeat of the 1970's i would reduce stocks a little, increase tips and commodities a little.
It is nice to see funds weighted by earnings and not by price. India still somewhat suffers from populism. I do not want to own ETF's denominated in US dollars because of the money that I lose due to inflation. I have all my dollars in the loonie.
Has anyone seen the post on Index Universe about new revenue ETFs. Interesting concept.
http://www.indexuniverse.com/sections/breaking-news/10/3723-new-etfs-take-different-twist-on-sap-indexes.html
What would be more attractive for an India play from your perspective Roger; INP, PIN, or EPI? I currently own INP, but am considering swapping to EPI or PIN, since I have been reading some frightening news regarding government regulation on foreign investments that may be affecting INP holdings (I won't pretend to fully understand this). Thanks-
I have not looked at the PowerShares product yet. I plan to do a write up for TSCM that would compare the two.
You are right about INP, that it is a derivative is the issue with the Indian gov't. This raises many questions about the future of the fund.
Thanks Roger, I look forward to the write up and thoughts on investing in India through the recent ETF additions.
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