Coming Soon: India ETF

"So far, ETF investors have been mostly shut out of India, but that could be about to change."

So says the WSJ’s Ian Salisbury. In an article this week, he discussed a new global index fund development. Apparently, several firms are working on ETFs that will track either the largest Indian companies (Barclays), or a hybrid of US/Indian firms (Amvescap). These could be available to investors before year’s end.

Here’s a quick excerpt:

Barclays iPath MSCI India Index ETN will follow the MSCI India Total Return Index, according to the filing. Among the index’s 68 components, top holdings include Infosys Technologies Ltd., Reliance Industries Ltd., and Icici Bank Ltd., according to the ETN’s prospectus.

The MSCI index is broader than the Bombay Exchange Sensitive Index, or Sensex, the 30-component index that is often quoted as the benchmark for the Indian stock market much the way the Dow Jones Industrial Average is in the U.S. In addition, the MSCI index adjusts the weightings of its components to comply with foreign investment rules.

The new Barclays investment product won’t be an exchange traded fund, but an "exchange traded note," a debt security issued by Barclays, which promises investors the returns of the index. Investors who hold ETNs take on the risk that Barclays could fail to pay them. However, they don’t bear risks associated with "tracking error," the difference between the return of an index mutual fund and its underlying benchmark . . .

Mutual-fund ratings firm Morningstar Inc. says it tracks only two open-end India mutual funds, the Eaton Vance Greater India Fund, which launched in 1994, and the Matthews India Fund, which appeared last year. By contrast, Morningstar follows more than a dozen China-oriented funds. China’s economy "is bigger and there is generally more interest," says fund analyst Arijit Dutta. "But, arguably, India is a deeper and more liquid market," he adds.

Mr. Dutta notes that broader emerging-markets funds, which Morningstar generally recommends to investors over single-country funds, put, on average, about 5% of their assets in India — an amount that is more or less equal to the allocation they give China and Hong Kong combined. Closed-end funds that invest in India include Blackstone Asia Advisors LLC’s India Fund and the Morgan Stanley India Investment Fund.

Interesting idea, and makes lots of sense.

Too bad its only their large cap — I’d like to see midcap or allc ap versions also . . .

ETF Investors See Passage to India
Ian Salisbury
WSJ, December 6, 2006; Page C11

See also:

India ETF coming but don’t get too excited
Aaron Pressman
BW, June 16, 2006

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What's been said:

Discussions found on the web:
  1. paul commented on Dec 10

    Could someone explain how an exchange traded note works? How does Barclays guarantee the index returns, pay transaction fees and make $ on this? Thanks.

  2. my1ambition commented on Dec 10

    Suggestion Barry: In addition to all the informative information around the blog, how about adding a poll.

    Very easy to set up. I’m sure you’ll enjoy it.

  3. David Hepworth commented on Mar 24 has some insights into the biographies and backgrounds of some of the portfolio managers at Indian ETF’s, closed-end funds, and mutual funds. Those who are qualified may receive information on Indian hedge funds, subject to regulatory approval and AML.

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