The emerging markets have been exhibiting some uneven growth, with commodity-producing countries taking the brunt of the recent hits. However, exchange traded fund investors can take a targeted approach to specific developing countries.
For instance, market observers are singling out India as a number of fundamental factors help support the emerging economy, reports Jeff Benjamin for InvestmentNews.
Specifically, many argue that India’s favorable demographics will help support a growing economy. Over a third of India’s 1.3 billion people are between the ages of 15 and 34 with a median age of 27, compared to 37 in China, 38 in the U.S., 41 in developed Europe and 46 in Japan. India’s population is also expected to grow by 1.4%, compared to China’s 0.5% and 0.9% in the U.S.
“India has the youngest population in the world. That’s why it’s a story of a rapidly growing consumer economy,” Ed Kerschner, vice chairman at Emerging Global Advisors, told InvestmentNews. “The middle class is not just a statistic. It’s an aspirational benchmark of when and how an economy begins to consume.”
Over the short-term, India has benefited from cheap energy prices as the country is one of the largest importers of crude oil. Looking further out, economic reforms, including more business-friendly and growth-oriented policies, could help support growth over the medium-term.
“India probably has the most progressive government, with leadership that seems at least interested in capitalistic ways of growing, even though there are still a lot of issues that could slow things down,” Theresa M. Rosen, founder and chief executive of Prudence Financial Inc., told InvestmentNews.
ETF investors can gain targeted exposure to this emerging market through options like the iShares MSCI India ETF (BATS: INDA), PowerShares India Portfolio (NYSEArca: PIN) and WisdomTree India Earnings ETF (NYSE: EPI).
INDA tracks the MSCI India Index, a market capitalization-weighted index that is fairly top heavy. PIN follows the Indus India Index, which takes the largest companies listed on two major Indian exchanges. EPI tracks the WisdomTree India Earnings Index, which weights holdings based on earnings, so the fund may have a greater tilt toward smaller companies.
Todd Rosenbluth, director of mutual fund and ETF research at S&P Capital IQ, argues that investors are taking a look at these India country-specific ETFs because the market looks like the best area in the emerging markets.
“Investors used to think of BRIC as a group, but Brazil and Russia have struggled more economically and their stock performance has differed from China and India,” Rosenbluth told InvestmentNews. “That’s why investors are increasingly looking to single-country funds.”
India is also a large component in many broad emerging market funds. For instance, India makes up 13.2% of Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and 9.0% of iShares MSCI Emerging Markets ETF (NYSEArca: EEM). However, these broad emerging market ETFs have been dragged down by their weights to less favorable exposures, like Russia and Brazil.
Max Chen contributed to this article.