ETF Talk: The Rise of The Raj

In the inaugural ETF Talk feature on Feb. 27, I highlighted the tremendous, money-making possibilities of India, one of the world’s most culturally rich, emerging market powerhouses. Back then, I wrote about a planned exchange-traded fund (ETF), the PowerShares India Portfolio (PIN). That fund launched on March 5 and it now has a track record to share with you. Its early performance is proving that my reluctance to recommend this fund in its rollout stage was on the mark.

The PowerShares India Portfolio (PIN), based on the Indus India Index, is designed to replicate the Indian equity markets as a whole. The index consists of a diverse group of 50 Indian stocks selected from 200 of the largest companies listed on the Mumbai Stock Exchange and 200 of the biggest companies listed on the National Stock Exchange. PIN is allocated primarily to large-cap stocks. Indeed, 71% of the fund’s stock holdings consisted of large-cap growth, while 28% were large-cap value stocks, as of May 21.

Since the fund launched in early March, it has exhibited some volatility and now is down slightly — about 3.6% — from its inception date closing price, as of May 21. But with India’s BSE Sensex on an upward trend and with PowerShares India Portfolio (PIN) reaching an all-time high earlier this month, this emerging market ETF may be headed for higher ground in the months ahead.

As you can see from the chart of PIN above, the fund’s price dipped to an all-time low of $22.25 in mid-March. In the two-plus months since then the ETF has rebounded and now is trading at just over $24 a share. This type of volatility is one of the reasons I still recommend a healthy dose of caution before considering a position in this India ETF.

PIN also currently is averaging a daily trading volume of 89,013 for the past three months. While not a strict rule of mine, I generally do not recommend thinly traded ETFs that have an average volume of less than 100,000 shares a day.

Nonetheless, India remains one of the fastest-growing economies in the world, along with Brazil, Russia and China. These so-called BRIC nations offer great investment potential, but they also bring with them the risk of high volatility. Brazil has been the best-performing BRIC market so far this year. At some point, India may follow along. For now, I’ll keep monitoring this fund and others that invest in India at a safe distance.