Choosing The Best India ETF Is Complex

December 03, 2014

There are good reasons to choose one Indian ETF over another, but you have to understand those reasons.

India’s been the hottest of the “BRIC” markets in 2014 by a long shot. The benchmark BSE Sensex Index is up more than 37 percent year-to-date, and India ETFs are surging in terms of performance and flows.

Year-to-date, the two leading ETFs in the space, the $2.3 billion WisdomTree India Earnings Fund (EPI | C-73) and the $1.9 billion iShares MSCI India ETF (INDA | C-92), have seen net inflows of $955 million and $1.19 billion, respectively.

Within our Alpha Think Tank, India now carries the highest number of strategists with a favorable view on any single international market, including a “thumbs up” from famed macroeconomist Nouriel Roubini and geopolitical strategist Ian Bremmer.

Unfortunately for investors interested in India, choosing the best India ETF is trickier than it may look. That’s because they offer different risks and sector breakdowns, causing divergences in returns.

India Returns

Source: Bloomberg

Clearly, EPI has outperformed INDA year-to-date by roughly 5 percentage points. You might even look at EPI’s “lower” price-to-earnings multiple (P/E) of 14.32 and deem it a value play in an Indian stock market where valuations are stretched. (Our benchmark, the MSCI India IMI Index, trades at a trailing P/E of 20.26.)

But if you think value means less market risk, thus making EPI a “safer” play, you might want to reconsider.

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