India, one of the most populous nations on Earth, is an interesting country for investors because it holds the promise of significant growth potential. Its unique characteristics include a population that is young compared to developed nations, the presence of some world class universities and the availability of many employable, English-speaking people. But the country has not yet managed to overcome regulatory obstacles and other problems that have held it back from achieving higher growth rates in the past. However, the recent election of a new, pro-business prime minister makes now a good time to consider investing in funds such as the Market Vectors India Small-Cap ETF (SCIF).
The election of conservative Bharatiya Janata Party (BJP) leader Narendra Modi as prime minister sets the stage for this BRIC (Brazil, Russia, India and China) country to grow rapidly. In fact, some observers anticipate this economic expansion will occur relatively quickly, as it has in some other Asian countries that modernized and adopted business-friendly policies.
SCIF is an exchange-traded fund (ETF) that seeks to replicate the results, before fees and expenses, of an index of small-capitalization companies that either are headquartered in India or generate most of their revenues in the country. If you are risk averse, keep in mind that this country-specific ETF is not diversified.
So far this year, SCIF has gained 53%, with a significant climb occurring after Prime Minister Modi’s election. Recently, subscribers to my Successful ETF Investing service made more than 25% in profits on a short-term trade with this ETF. In 2013, the fund’s gain of 185.07% far outperformed the U.S. market.
SCIF’s top 10 holdings represent 27.75% of its total assets. These holdings include Unitech Ltd, 4.32%; Suzlon Energy Ltd, 3.24%; Jain Irrigation Systems Ltd, 2.77%; IFCI Ltd, 2.69%; and Vakrangee Software Ltd, 2.67%. The top sectors held by SCIF are consumer cyclical, 21.77%; industrials, 17.28%; financial services, 15.89%; and technology, 9.84%.
In addition, not only is SCIF a way to invest in India, which seems poised to prosper, but this particular ETF also focuses on small-cap stocks. As we have previously written, small caps have traditionally outperformed the broader stock market, at least here in the United States. Applying this lens to the Indian situation can make investing in Market Vectors India Small-Cap ETF (SCIF) potentially even more appealing.
If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful ETF Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.
In case you missed it, I encourage you to read my article from last week about how Russia’s rebound could be good for investors. I also invite you to share your thoughts below.
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