Monday, April 03, 2006

Investing in India - mutual funds

First, do see the disclaimer at the end of this page - mistakes can and do happen from time to time. In the upcoming segments we will look at investment opportunities in the middle country - China.

In the previous article we discussed Indian economy and some investment options. In this segment, we will take a look at the ETFs and mutual funds that provide exposure to India and look at them in some more depth.

EEM provides exposure to emerging markets with investments in many emerging economies. The countries that EEM invests in are Korea (17%), South Africa (12%), Brazil (11%), Taiwan (10.5%), HongKong (8.71%), Mexico (7.55%), Russia (5.74%), India (4.98%), Israel (3.57%) and Thailand (2.7%). EEM has an expense ratio of .75% and in the past year has slightly outperformed VWO - Vanguard Emerging Market Index Fund. This fund has returned 12.35% todate.

VWO is Vanguard's emerging market index fund. Though similar to EEM, the asset allocation is slightly different. VWO invests in Korea (18.64%), Taiwan (15.81%), South Africa (11.16%), Brazil (8.05%), Hongkong (7.77%), Mexico (6.87%), India (6.35%), Israel (3.03%), Thailand (2.17%) and Turkey (2.11%). VWO has a higher allocation in India and has no allocation in Russia at all. The expense ratio is lower at 0.3%. EEM probably has had a slightly better return than VWO this year but VWO seems to be picking up this year.

IFN is a closed end investment management company. According to ETFConnect.com, this fund is trading at 28% premium to net asset value as of 3/31/2006. The fund has a four star rating from morningstar. The expense ratio is very difficult to determine with different sources showing expense ratios from 2.5% to 4%. IFN has done better than EEM this year by about 10% points this year. The holdings for IFN as of 12/31/2005 according to etfconnect.com and the percentage holdings per company are as follows:

Infosys Technologies, Ltd. 9.2%
Reliance Industries, Ltd. 7.78%
Oil and Natural Gas Corp., Ltd. 6.32%
Bharti Tele-Ventures, Ltd. 4.73%
Bharat Heavy Electricals, Ltd. 4.55%
Housing Development Finance
4.28%
ITC, Ltd. 3.47%
State Bank of India 3.23%
Tata Motors, Ltd.
3.12%
Hindustan Lever, Ltd. 2.58%

IIF Morgan Stanley India Investment Fund was trading at a premium of 7.35% to NAV according to etfconnect.com on 4/4/2006. The expense ratio is not clear and varies from 1.5% to 2.6% according to various sources. The returns seem to be slightly higher compared to IFN but IFN has been around for a longer time. IIF has trailed IFN in the past one year by about 10% points.


As of 02/28/2006, according to etfconnect.com, the IIF holdings were as follows.

Bharat Heavy Electricals 11.4%
Siemens India Ltd 6.1%
Hindustan Lever Ltd
5.5%
ABB Ltd India 4.9%
Hindustan Construction Co. 3.9%
Housing Development 3.7%
ITC Ltd 3.7%
Infosys Technologies Ltd 3.6%
Hdfc Bank Ltd
3.3%
Hero Honda Motors Ltd 3%

MINDX Matthews India Fund was started on 10/31/2005. The fund expenses are 2% but the fund has lagged behind the BSE 100 index. The fund managers attribute the lag to the timing of the fund launch. MINDX performance has been right up there with IFN ever since inception.

As per the quarterly report from 12/31/05, MINDX had the following holdings.

Dabur India Limited 4.7%
Housing Dev Finance Corp 4.4%
Sun Pharmaceuticals Industries Ltd 3.6%
Infosys Technologies Lmtd 3.6%
Hindustan Lever, Ltd 3.5%
HDFC Banking, Ltd 3.2%
SIFY Ltd, 3.0%
CESC Ltd, 2.9%
Reliance Industries Ltd, 2.9%
Gail India, Ltd. 2.8%

ETGIX Eaton Vance Greater India Fund. The fund carries an expense ratio of around 2.5% but the expense ratio varies from year to year. This doesnt include the front load fee that is charged for the fund. The front load fee varies from 5% to 0% depending on the money invested. ETGIX has trailed IFN if one looks at the performance for the past one year. However, it has done better than IIF. The company holdings were as follows as of 12/31/2005.

SIEMENS INDIA LIMITED 4.50%
RELIANCE INDUSTRIES LIMITED 4.45%
TATA CONSULTANCY SVS LTD 4.44%
INFOSYS TECHNOLOGIES LTD 4.24%
GLAXOSMITHKLINE PHARMACEUTIC 3.69%
OIL & NATURAL GAS CORP LTD 3.43%
BAJAJ AUTO 3.39%
SUN PHARMACEUTICAL INDUS LTD 3.30%

HINDUSTAN LEVER LIMITED 3.28%
SUZLON ENERGY LIMITED 3.21%

BHARAT PETROLEUM CORP LTD 2.97%
FINANCIAL TECHN (INDIA) LTD 2.75%
MARUTI UDYOG LTD 2.74%
ITC LTD 2.59%

To sum up - all the funds have done extremely well. While there are some variations in each of the funds and the expense ratios are difficult to predict, the rising tide of economic growth is lifting all the mutual fund boats.

5 comments:

Anonymous said...

The reason IFN has 'overperformed' by about 10% is the big premium it trades to it's underlying NAV. It traded at as high as 33% premium to it's NAV in late Feb & Mar 2006 and currently trading at about 22% premium.

IMHO this premium is not justified at all. They publish their NAV only once every week and just underwent a management change.

IIF or MINDX are much better vehicles to invest in India. IMHO I'd wait for 10-15% correction in the Indian markets before buying...

mr p said...

Do you have any specific recommendations out of these?

mr p said...

Also wanted to say excellent blog. You have a reader now.

Anonymous said...

Looks like TTM brought all the India stocks down. Apparently they haven't paid taxes since 1999.
RDY has been a great stock in my portfolio...Got around 23 in January and looks like nothing is going to stop it (except maybe Tata)

Anonymous said...

i m broke by trusting mindx. next time i will put my and money in a more professionally run company