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ETFs For Exposure To MODIfied India

Summary India is one of the most popular emerging market destinations. Indian stock markets offer great opportunity for investors looking to diversify geographically. Investors need to embrace the ‘reactive’ nature of these markets. Exchange traded funds (ETFs) are one of the best ways to access stocks listed on Indian stock exchanges. The Modi government has ushered in an era of ‘investor confidence’ in India by ending the period of policy paralysis. The one-year old government has taken initiatives on various issues, which include foreign direct investment, direct transfer subsidies and streamlined tax regimes, among other things. These steps have been complemented by the disciplined monetary policy management by the Reserve Bank of India. Tamed inflation has given room to the central bank to lower interest rates. In addition, internationally low oil prices are coming in handy for India which is hugely dependent on oil imports. A lower import bill and better fiscal management will help reduce India’s deficit problems. Notably, the International Monetary Fund estimates a 7.5% growth rate for India’s economy this fiscal. The country’s economic environment augurs well for investing in Indian stock markets. Exchange traded funds are one of the best ways for investors to access Indian land and diversify their portfolio geographically. While Indian stock markets offer great opportunity, they tend to be over-reactive. The graph below shows the annual performance of MSCI India Index, MSCI Emerging Market Index and MSCI ACWII Investable Market Index. The MSCI Index India has performed better than the other than during upward trend, but has dipped more during market fall. Nevertheless, India is still one of the best options among the emerging markets. In 2015, till September 10, the MSCI India Index was down by 9.22% while the MSCI Emerging Markets Index was down by 15.91%. The MSCI Index for countries like Brazil (-37.38%), China (-11.46%), Indonesia (-29.77%), Taiwan (-13.20%) and Thailand (-16.20%) were in red. Out of the BRIC countries, Russia was up by 6.98% (MSCI data source ). The weakness in the markets can be seen as a buying opportunity and follow Warren Buffet’s words of wisdom. Warren Buffett in his piece in The New York Times in October 2008 wrote: A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now. Here are some of the ETFs investors can consider to access the Indian stocks. WisdomTree India Earnings Fund The WisdomTree India Earnings Fund (NYSEARCA: EPI ), launched in 2008, is among the biggest and well-known funds allocated purely towards India. A portfolio of 235 stocks makes the fund adequately diversified across different sectors within the Indian markets. Majority of the holdings in the basket are large cap with some element of mid-cap stocks. The fund’s top ten holdings are some of the best-known Indian companies like Infosys Ltd (NYSE: INFY ), Reliance Industries Ltd, Hosing Development Finance Co, ICICI Bank Ltd (NYSE: IBN ), Tata Consultancy Ltd, Oil & Natural Gas Corporation, Tata Motors Ltd (NYSE: TTM ) and State Bank of India ( OTC:SBKJY ), among others. The allocation towards the top ten holdings usually hovers in the range of 40-45%. The sector breakdown reflects the fund’s emphasis on financials (26%), information technology (20%) and energy (16%) sectors. The fund tracks the WisdomTree India Earnings Index, which is a fundamentally weighted index and hence includes companies based on their earnings performance. This ETF with its fund size of $1.66 billion and expense ratio of 0.83% emerges as one of the good funds for investors looking to bet on India’s growth story and yet stay more conservative in approach. (Source for fund facts and figures here .) iShares MSCI India ETF The iShares MSCI India Index ETF (BATS: INDA ) offers a more concentrated, passively managed bet in Indian stocks with its compact portfolio of around 70 stocks belonging to the large-cap and mid-cap space. The ETF is heavily invested in sectors such as information technology (20%), financials (16%), consumer staples (12%), healthcare (11%), energy (11%) and consumer discretionary (9%). The top ten holdings reflect the presence of these sectors in the fund with companies such as Housing Development Finance Co (NYSE: HDB ), Infosys Ltd, Reliance Industries Ltd, Tata Consultancy Services Ltd, Sun Pharmaceutical Industries Ltd ( OTC:SMPQY ), ITC Ltd (NYSE: ITC ), Hindustan Unilever Ltd ( OTC:HNSQY ), Larsen & Toubro Ltd, HCL Technologies Ltd ( OTC:HCTHY ) and Bharti Airtel Ltd ( OTC:BHRQY ). This ETF has an expense ratio of 0.68% and a beta of 0.64 which classifies it as a defensive fund. Although this ETF was launched only in 2012, it has $3.58 billion in assets under management, which speaks of the popularity of the ETF. (Source for fund facts and figures here .) PowerShares India Portfolio The PowerShares India Portfolio ETF (NYSEARCA: PIN ) is a large-cap fund (97%) that tracks the Indus India Index, which is a composition of 50 stocks. These are the stocks of some of the biggest companies listed on the Bombay Stock Exchange as well as National Stock Exchange. The fund has been around since 2008. It is diversified across different sectors with high allocation towards information technology (23%) and energy (22%) sectors followed by healthcare (13%) and financials (11%). The top ten holdings of the fund add up to 56% of its net assets. Its stop picks are Infosys Ltd, Reliance Industries Ltd, Sun Pharmaceuticals Industries Ltd, Housing Development Finance Co, Hindustan Unilever Ltd , Oil & Natural Gas Corporation Ltd, Tata Consultancy Services Ltd, Coal India Ltd ( OTC:CLNDY ), Bharti Airtel Ltd and Indian Oil Corporation Ltd ( OTC:INOIY ). (Source for fund facts and figures here .) Market Vectors India Small-Cap Fund The Market Vectors India Small-Cap Index ETF (NYSEARCA: SCIF ) is for investors with a high risk appetite. The Fund seeks to track the performance of the Market Vectors India Small-Cap Index. The fund has a 97.6% exposure to India with 1.9% and 0.8% of its net assets invested in the US and Japan. The fund’s holdings are largely small-cap, which by basic trait are much more volatile (and hence risky) in movement; such stocks tend to rally more during a boom phase and are often abandoned during weak markets which accentuates their fall in such times. The fund commenced in 2010 and currently has a $172.44 million in net assets. The fund has about 130 small-cap stocks in its kitty with the maximum exposure to the top holdings restricted to around 5%. This decreases the concentration risk; the top ten holdings currently added up to 25%. The fund has a good management backing it in addition to growing liquidity, but is only suitable to high risk-reward players. (Source for fund facts and figures here .) Two more exchanged traded funds focusing on small-caps are the iShares MSCI India Small Cap Index ETF (BATS: SMIN ) and the EGShares India Small Cap ETF (NYSEARCA: SCIN ). SMIN launched in 2012 provides exposure to small publicly listed companies in India. The fund with its small asset base of $62.88 million is diversified across 200 holdings. The top holdings make up just 17% of the portfolio; a small allocation towards each stock reduces the dependence of the fund on the performance of few stocks (Source for fund facts here ). Launched in 2010, SCIN is another fund focusing on the small-cap companies in India. This fund has a smaller portfolio of 75 stocks. The industry breakdown shows dominance of financials, industrials, consumer goods and utilities, making up 72% of the portfolio (Source for fund facts here ). Sector Specific ETFs There are two ETFs, which are positioned to gain from specific industries -infrastructure and consumer industry. One is the EGShares India Consumer ETF (NYSEARCA: INCO ), which tracks the Indxx India Consumer Index designed to measure the market performance of companies in the consumer industry in India. The fund was launched in 2011 and currently has $80.81 million assets under management. The fund has a small portfolio of 29 stocks picked from consumer goods (75%), industrials (14%) and consumer services sectors (11%) (Source for fund facts here ). Then there is the EGShares India Infrastructure ETF (NYSEARCA: INXX ) which is looking to benefit from India’s infrastructure industry. The fund has a portfolio of 30 holdings picked mostly from the industrials (40%), telecommunications (19%) and utilities (17%) space. The fund has a small corpus of $42 million and an expense ratio of 0.85% (source for fund facts here ). Funds focusing on select themes or sectors tend to be more risky. There is something for super adventurous investors. It is the Direxion Daily India 3x Bull ETF (NYSEARCA: INDL ), which is a leveraged exchange traded fund that seeks a 3x return of its benchmark index on a daily basis. Conclusion While Indian stock markets offer great opportunity given the fundamentals of its economy, it is not immune to other markets and economies. Market correction are bound to happen and the corrections triggered by weakness in other markets shouldn’t affect long-term investors unless India’s own economic parameters look weak. The recent market fall offers a good time for investors to enter and start building a long-term portfolio. In a nutshell, India’s growth story is intact. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Guide To Interest Rate Hikes And ETFs: 4 Ways To Play

Amid spiraling woes, the China-led global deceleration fear in particular, the question that Wall Street is raising is whether the Fed will finally raise the first interest rates in almost a decade later this month. While the recent global rout could put a pause on the September lift-off, a series of upbeat data on the domestic front is supporting the prospect of a rates hike. Data Supportive of Rates Hike The U.S. economy is on a firmer footing, having expanded 3.7% in the second quarter. The number is well above the initial reading of 2.3% and 0.6% growth in the first quarter, suggesting that the U.S. could easily withstand the China turmoil and global growth worries. Trade gap narrowed 7.4% from June to $41.9 billion in July, the smallest since February. Exports rose 0.4% amid a strong dollar and weakness in major trading partners such as China and Europe. Consumer credit has been on the rise over the past four years, a sign of confidence amid low gas prices and steady job creation. Further, the housing market has been firing all cylinders thanks to soaring demand for new and rented homes, rising wages, accelerating job growth, affordable mortgage rates and of course increasing consumer confidence. The August job data, which is the most important indicator of the Fed policy, has been mixed. Though the U.S. added fewer-than-expected jobs tallying 173,000 in August, the drop in the unemployment rate and acceleration in average hourly wages kept the prospect of a September lift-off alive for later this month. In fact, the unemployment rate dropped from 5.3% in July to a seven-and-half year low of 5.1%, a level that the Federal Reserve considers as full employment while average hourly wages rose a modest 0.3% from the prior month and 2.2% from the year-ago level. These suggest that the labor market is healing. Inflation remains soft, but has been increasing steadily this year and is expected to touch the 2% target on a improving economy, marked by a steady labor market and a strengthening housing sector. However, uncertainty still looms around the timing of interest rates given the turmoil in China, trickling oil prices, and a slowdown in key emerging markets. Any Reason to Worry? Higher rates would attract more capital to the country from foreign investors, thereby boosting the U.S. dollar against the basket of other currencies. This would have a huge impact on commodity-linked investments, reflecting that a rising rate environment will hurt a number of segments. In particular, high dividend paying sectors such as utilities and real estate would be the worst hit given their higher sensitivity to rising interest rates. Further, securities in capital-intensive sectors like telecom would also be impacted by higher rates. In this backdrop, investors should be well prepared to protect themselves from higher rates. Here are number of ways that could prove extremely beneficial for ETF investors in a rising rate environment: Insurance Insurance stocks are one of the prime beneficiaries of a rate hike, as these are able to earn higher returns on their investment portfolio of longer-duration bonds. But at the same time, these firms incur loss as the value of longer-duration bonds goes down with rising interest rates. Nevertheless, since insurance companies have long-term investment horizons, they can hold investments until maturity and hence, no actual losses will be realized. While there are number of insurance ETFs, SPDR S&P Insurance ETF (NYSEARCA: KIE ) could be a good bet. This fund follows the S&P Insurance Select Industry Index and offers an equal weight exposure to 52 stocks, suggesting no concentration risk. About 39% of the portfolio is allocated to the property and casualty insurance while life & health insurance accounts for one-fourth share. The ETF has managed $523 million in its asset base and trades in a moderate average daily volume of over 96,000 shares. It charges 35 bps in annual fees and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook. Financials A look to the broad financial sector is also a good option, as a steeper yield curve would bolster profits across various corners of the segment. Not only will insurance stocks climb, banks and discount brokerage firms will also be the winners in a rising rate environment. A broad way to play this trend is with Financial Select Sector SPDR Fund (NYSEARCA: XLF ), having AUM of $17.4 billion and average daily volume more than 33 million shares. The ETF follows the S&P Financial Select Sector Index, holding 90 stocks in its basket. The top three firms – Wells Fargo (NYSE: WFC ), Berkshire Hathaway (NYSE: BRK.B ) and JPMorgan Chase (NYSE: JPM ) – account for over 8% share each while other firms hold less than 5.9% of assets. In terms of industrial exposure, banks take the top spot at 36.9% while insurance, REITs, capital markets and diversified financial services make up for a double-digit exposure each. The fund charges 15 bps in annual fees and has a Zacks ETF Rank of 1 or a ‘Strong Buy’ rating with a Medium outlook. Short-Duration Bonds Higher rates have been cruel to bond investors, especially the longer term, as an increase in rates has always led to rising yields and lower bond prices. This is because price and yields are inversely related to each other and might lead to huge losses for investors who do not hold bonds until maturity. As a result, short-duration bond are less vulnerable and a better hedge to rising rates. While there are several options in this space, iShares 1-3 Year Treasury Bond ETF (NYSEARCA: SHY ) seems to be intriguing choice. It has a solid $12.5 billion in AUM and is highly traded with more than 1.2 million shares a day on average. The ETF follows the Barclays U.S. 1-3 Year Treasury Bond Index, holding 83 bonds in its basket with average maturity of 1.87 years and effective duration of 1.84 years. It has 0.15% in expense ratio and has a Zacks ETF Rank of 3 with a Low risk outlook. Inverse ETFs Investors worried about higher interest rates could also go short on rate sensitive sectors like utilities and real estate via ETFs. There are a number of inverse or leveraged inverse products currently available in the market that offer inverse (opposite) exposure to these sectors. While a leveraged play might be a risky option, inverse ETFs are interesting choices and provide hedging strategies in a rising rate environment. In this regard, ProShares Short Real Estate ETF (NYSEARCA: REK ) seeks to deliver the inverse return of the daily performance of the Dow Jones U.S. Real Estate Index. The product has amassed $34.4 million in its asset base while volume is moderate at around 81,000 shares a day. Expense ratio came in at 0.95%. Original Post

Summer Madness To Nut Case? A Fall Preview Of ETFs

Summer 2015 saw investors sweating it out on the markets as the U.S. stock market ran into a correction territory thanks to the China gloom, Fed uncertainty, emerging market weakness and slumping commodities. Perhaps they should have stuck to the popular trading adage “Sell in May and Go Away”. After all, the May end to early September period has historically been known for melting profits at the bourses. This time around, the markets went berserk with performances swinging from sky-high in certain sectors to dreadful by others. Will the markets continue to shake in fall as well? Let’s check out: Housing Booms The housing market fired on all cylinders in summer thanks to soaring demand for new and rented homes, rising wages, accelerating job growth, affordable mortgage rates, and of course increasing consumer confidence. Among the most notable data, new home construction jumped to an almost eight-year high in July and existing home sales rose to an eight-year high. Further, homebuilder confidence in August surged to a level not seen in decades. The robust numbers spread optimism across the sector with the iShares U.S. Home Construction ETF (NYSEARCA: ITB ) and the SPDR Homebuilders ETF (NYSEARCA: XHB ) touching new highs on August 18 and 19, respectively. Both the ETFs have a decent Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook and were up 3.6% and 0.1%, respectively, over the past three months. The outperformance is likely to continue in the coming months given that the residential and commercial building industry has a solid Zacks Rank in the top 29%. China Glooms China has been roiling the global stock markets since the start of the summer with worries intensifying last month when the country surprisingly devalued its currency renminbi by 2% to ramp up exports. After that, sluggish factory activity data heightened fears of China’s hard landing and the resultant global damage. This led to terrible trading in China ETFs, which were the hot spot at the start the year. Even the latest round of monetary easing by the People’s Bank of China (PBOC) to fight the malaise did not help the stocks to recover the losses. Given the steep decline in the stocks, China ETFs had a bloodbath with the Market Vectors ChinaAMC SME-ChiNext ETF (NYSEARCA: CNXT ) and the Deutsche X-trackers Harvest CSI 500 China-A Shares Small Cap ETF (NYSEARCA: ASHS ) stealing the show. Each of the funds was down over 20% in August and nearly 53% over the past three months. CNXT has a Zacks ETF Rank of 2 or ‘Buy’ rating with a High risk outlook while ASHS has a Zacks ET Rank of 3. Rough trading in China is likely to continue at least in the near term given that the world’s second-largest economy is faltering with slower growth, credit crunch, a property market slump, weak domestic demand, lower industrial production and lower factory output. Corporate profits are also lower than a year ago. Additionally, a slew of recent measures are not helping in any way to revive investors’ confidence. Further, most analysts believe that China will continue to face a long period of uncertainty that would result in more volatility Crazy Run of ‘The Oil’ After a stable start to summer, oil saw a frenzied August, showing large swings in its prices. In fact, the commodity exhibited the maximum volatility in 24 years . This is because oil price enjoyed its biggest rally of more than 25% in the last three days of August but softened again as worries about growth in the Asian powerhouse resurfaced. U.S. crude was trading around $60 per barrel for most of the first half of summer but gradually dropped to nearly $38 per barrel on August 25 – a level not seen since 2009. Oil suddenly sprung up to over $49 per barrel for a three-day period ending August 31, and again retreated to around $46 per barrel. Even after the spectacular three-day performance, energy ETFs failed to recoup their losses made in mid-to-late summer. In particular, stock-based energy ETFs like the First Trust ISE-Revere Natural Gas Index ETF (NYSEARCA: FCG ) and the PowerShares S&P SmallCap Energy Portfolio ETF (NASDAQ: PSCE ) plunged 35.9% and 32.4%, respectively, over the past three months while futures-based energy ETFs like the iPath S&P Crude Oil Total Return Index ETN (NYSEARCA: OIL ) and the United States Oil ETF (NYSEARCA: USO ) lost 31.6% and 27%, respectively. FCG and PSCE have a Zacks ETF Rank of 4 or ‘Sell’ rating with a High risk outlook. The outlook for oil and the related ETFs look dull at present given the unfavorable demand and supply dynamics. In fact, the International Energy Agency (IEA) in its recent monthly report stated that the global oil market would remain oversupplied through 2016 though lower oil prices and a strengthening economy will boost oil demand at the fastest pace in five years. Yet, demand is currently not as strong as expected given the China slowdown and weakness in emerging markets. Automotive Thrives The U.S. automotive industry is on top gear with fat wallets, rising income and increasing consumer confidence adding adequate fuel. This is especially true as auto sales have been consecutively on the rise over the past four months with sales remaining above the healthy 17-million mark. The industry is likely to flourish going forward given that the economy is gaining traction after the first-quarter slump. Economic activity is picking up, labor market is strengthening, consumer spending is increasing, and the housing market is improving. Additionally, lower gasoline price is a huge boon to auto sales. The upside can be further confirmed by the solid Zacks Industry Rank, as about two-thirds of the industries under the auto sector have a strong Zacks Rank in the top 30%, suggesting growth ahead. Investors could ride out this surging sector with the only pure play the First Trust NASDAQ Global Auto Index ETF (NASDAQ: CARZ ) . The fund was a victim of recent broad sell-off, shedding 16.4% over the last three months. However, the ETF has a solid Zacks ETF Rank of 2 with a High risk outlook, urging investors to take advantage of the current beaten down price. Link to the original post on Zacks.com