US fund houses launch five India-specific ETFs

[B. Karthick]

MUMBAI: American fund houses have launched five more India-specific
exchange-traded funds (ETFs) to tap the growth potential of Asia’s
third-largest economy that defied the global recession to post an
impressive growth rate of 6.7% last financial year.

These funds are BGI S&P India Nifty 50, Direxion India Bull 3x Shares,
Direxion India Bear 3x Shares, SPDR S&P India and WisdomTree India
Total Dividend. The fund houses have filed their papers with the
Securities Exchange Commission (SEC), said a person familiar with the
matter, requesting anonymity.

ETFs are open-ended funds that are designed to track specific indices
and trade just like any other stock. They are priced continuously and
can be acquired by placing an order with a stock broker during trading
hours.

Direxion Shares and Direxion Funds, managed by Rafferty Asset
Management, offer leveraged index funds that buy more shares than you
can with cash, ETFs and alternative-class fund products for investment
advisors and sophisticated investors who seek to effectively manage
risk and return in both bull and bear markets.

SPDR ETF, managed by the Boston-based SSgA Funds Management, are index
funds that track the S&P 500 Index. Barclays Global Investors or BGI
has filed papers for a new ETF linked to the S&P India Nifty Index.

Currently, there are just two India ETFs, from PowerShares and
WisdomTree. However, many other providers are looking to capitalise on
the country’s growth. As on July 30, WisdomTree India Earnings (EPI)
was up 63.7% year-to-date, while PowerShares India (PIN) was up 52.7%
year-to-date.

The two India ETFs have more than $560 million in assets. As one of
the few economies that grew in a year that saw most of the world in
recession, India has a growing acceptance among global investors, said
Ashu Suyash, India head of Fidelity International.

“A possible reason for the surge in ETFs investing in India is that
risk appetite has returned sufficiently for investors to look at
emerging markets again... As allocations grow, investors will begin to
look for the alpha and follow a more actively-managed investment
strategy,” she said. California-based ETF expert Tom Lydon said
investors increasingly recognise that ETFs make it easier to access
markets that have certain restrictions (such as limits on foreign
investment) or liquidity issues.

ETFs have become big investors in India, basically because the US
retail investor has accepted India as part of his global equity
portfolio, said Samir Arora of the Singapore-based Helios Capital
Management. “That money cannot be easily raised by other
intermediaries,” he said.

Over 25% of secondary market inflows were through this route in recent
months, according to Credit Suisse. “ETFs are perhaps securitising
emerging markets like India in the current global liquidity wave, the
way previous liquidity waves saw securitisation of internet or
developed world real estate,” said Nilesh Jasani and Arya Sen of
Credit Suisse.

While there will be occasional outflow cycles in coming years, the
overall influence wielded by ETFs is expected to grow larger. FII
buying in India from April 1, 2009 is close to $9 billion.

A recent study by Novarica, a research and advisory firm serving
insurers and wealth management companies, says globally the number of
ETFs will shoot up from 728 in 2008 to 2,618 by 2015, while ETF assets
will increase from $500 billion to $1.15 trillion.