Home Asia Funds India Equity ETF Comparison: iShares, WisdomTree, Xtrackers

India Equity ETF Comparison: iShares, WisdomTree, Xtrackers

Invest in India with India ETF
India’s textile industry, large contributor to India’s exports (Source: Radiokafka/Shutterstock.com)

India is one of the largest and fastest-growing economies in the world. India-focused equity ETFs offer investors an opportunity to invest in some of the country’s best companies. In this article we compare three of the top India ETFs: iShares MSCI India ETF, WisdomTree India Quality ETF and X MSCI India Swap ETF.

iShares MSCI India ETF (Acc, USD, ISIN: IE00BZCQB185)

The iShares MSCI India ETF tracks the MSCI India Index. The ETF invests in 84 Indian equities in the large and mid-cap segments and covers around 85% of the Indian equity market. Similar to the Indian markets, Financials, Energy, and Information Technology sectors dominate the Index.

Country’s rising income levels provide immense opportunities to the financial sector companies, as there is a huge untapped market. However, some of the large state-owned banks continue to face challenges, like high non-performing assets, which may pose significant risks. With rising demand, the country’s Energy sector continues to do well. Likewise, India’s Information Technology sector continues to expand and innovate, providing more value-added services.

Overview

The ETF, which was founded in 2012, has AUM of $5.7 billion. The fund is managed passively using representative sampling indexing strategy. This involves investing in a representative sample of securities that collectively has an investment profile similar to that of the MSCI India index.

Portfolio and Performance

As of December 2019, the fund holds 84 securities and has a PE of 23.8, which is lower than the market PE. The fund’s top sector is Financials with a weighting of 30.6%. It is followed by Energy and Information Technology sectors, which constitute 15.1% and 14.8%, respectively. This is in-line with the Indian markets.

Top holdings include Reliance Industries Ltd. with a weight of 11.3% and Housing Development Finance Corp. with a weight of 10.3%. The top 10 stocks account for 53.8% of the fund, closely tracking the index’s constituents. With a focus on low volatility stocks, large cap stocks dominate the Index by weightage.

5-year performance is 4.17% p.a. which is 0.9% behind the index.

WisdomTree India Quality ETF (Acc, USD, ISIN: IE00BDGSNL04)

The WisdomTree India Quality ETF tracks the performance of the WisdomTree India Quality Index. The market-cap weighted Index measures the performance of profitable companies with the best combined score of quality factors among Indian companies.

Team and Process

The quality score is calculated using a combination of the historical three-year average Return on Equity (ROE) and the historical three-year average Return on Assets (ROA). Companies must meet minimum liquidity and market capitalization requirements to be a part of the WisdomTree India Quality Index. The ETF uses physical replication and fully replicates the index.

With an AUM of $4.95 million, the WisdomTree India Quality ETF is much smaller compared to the iShares MSCI India ETF. It was founded in 2017. Irish Life Investment Managers Limited is responsible for the investment of the fund’s assets under the supervision of WisdomTree directors.

Portfolio and Performance

As of January 2020, the fund holds 113 securities. Consumer Staples, Information Technology and Consumer Discretionary are the top three sectors accounting for 22.98%, 20.36% and 19.35% of the fund, respectively. Maruti Suzuki India and Hindustan Unilever are the top two stocks respectively accounting for 5.3% and 5.2% of the fund. Weight of the top ten stocks of the fund is 41.9%.

Since the fund’s inception in February 2017, the fund has generated average total return of 3.5% p.a., which is 1.63% behind the WisdomTree India Quality Index.

X MSCI India Swap ETF (Acc, USD, ISIN: LU0514695187)

DWS Investments’ Xtrackers  MSCI India Swap ETF uses indirect replication method to provide exposure to large and mid-cap Indian equities.

Team and Process

It enters a swap agreement with an investment bank whereby the bank provides the ETF with the returns of the MSCI India Index adjusted to reflect certain index replication costs. The ETF’s current swap counterparties are BNP Paribas and HSBC Bank with gross exposure of 96.88% and 3.2%, respectively.

Founded in 2010, the ETF has AUM of $130.8 million as of December 2019. DWS Investments UK Limited acts as investment manager for the fund.

Portfolio and Performance

The MSCI India Index measures performance of only Indian equities. Its overweight in Financials, Information Technology and Energy sectors. Index’s top components are Reliance Industries and Infosys Technologies.

The fund’s 5-year performance is 3.35% p.a., which is 1.72% behind index. This difference is due to the additional swap transaction costs.

Summary

Both iShares MSCI India and X MSCI India Swap ETFs provide exposure to the large and mid-cap Indian equities. However, the iShares MSCI India ETF fared slightly better over past one-, three- and five-year timeframes. The indirect replication strategy using swap does not seem to offer any specific advantage over the representative sampling indexing strategy used by iShares. Further, the fees involved in managing the Swap ETF are higher, resulting in underperformance compared to the iShares ETF.

With a much smaller fund size and a shorter history, the WisdomTree India ETF still has a long way to go. The ETF’s performance maybe more volatile because even though the selected stocks may be good, it may take time before the stocks’ prices reflect the higher quality. Stocks in the more widely followed MSCI India Index may be at an advantage here. Finally, the WisdomTree ETF is overweight in the consumer sector while the other two ETFs are overweight in the Financials and Energy sectors.