Franklin Templeton Investments Launches India ETF

Franklin Templeton Investments launched a new fund on Feb 6, 2018, focused on providing exposure to the large-cap space of the Indian equity markets.

Franklin FTSE India ETF FLIN tracks the FTSE India Capped Index and holds a portfolio of equities providing access to the Indian equity markets.

Fund Characteristics

The fund’s index seeks to provide investment results that closely track the performance of Indian markets. It has amassed AUM of $2.4 million in few days of trading and has a low expense ratio of 19 basis points a year. It holds 136 stocks in its portfolio. The fund bears concentration risk, as more than 42% is allocated to the top 10 holdings.

From a sector look, Financials, Energy and Information Technology are the top three allocations of this fund, with 21.7%, 14.9% and 14.3% exposure, respectively.

From a top holdings perspective, the fund has 8.5% exposure each to Reliance Industries Ltd and Housing Development Finance Corporation and 6.4% to Infosys Ltd. Therefore, owing to its large-cap focus, the fund bears comparatively less risk. However, investors should note that investing in emerging markets requires a steady appetite for risk, owing to the geopolitical and governance risks that investors are exposed to while investing in these countries.

How Does it Fit in a Portfolio?

India has been falling prey to frauds and the latest is nothing short of a nightmare for public sector banks. India’s public sector banks have been witnessing a decline in share prices and market value, as diamond billionaire Nirav Modi has been accused of perpetrating a fraud to the tune of INR 110 billion ($1.8 billion) along with some members of the state-run Punjab National Bank (PNB) (read: Will Latest Bank Fraud Impact India ETFs?).

However, the economic scenario for the emerging market nation seems to be attractive. India’s GDP grew 6.3% year over year in the third quarter of 2017 compared with a three-year low of 5.7% in the previous quarter. Moreover, per a Morgan Stanley (NYSE:MS) report, India’s GDP is likely to have grown 7% in the December quarter of 2017.

Despite the worries on governance, Indian equities offer a great diversification option capable of generating great returns for investors.

Competition

The fund faces a lot of competition from other funds in the space. Below we discuss a few ETFs that seek to provide exposure to the Indian equity markets (see all Asia-Pacific Emerging ETFs here).

iShares MSCI India ETF INDA

This fund provides exposure to large and mid-sized Indian equities.

It has AUM of $5.5 billion and charges a fee of 68 basis points a year. Financials, Computer-Software and Consumer Discretionary are the top three sectors of the fund, with 22.8%, 14.4% and 12.0% allocation, respectively (as of Feb 23, 2018). Housing Development Finance Co, Reliance Industries Ltd and Infosys Ltd are the top three holdings of the fund, with 9.2%, 8.1% and 6.7% allocation, respectively (as of Feb 23, 2018). The fund has returned 21.5% in a year. INDA has a Zacks ETF Rank #1 (Strong Buy), with a Medium risk outlook.

WisdomTree India Earnings Fund (V:EPI)

This fund provides exposure to Indian equities in multiple capitalization segments.

It has AUM of $1.8 billion and charges a fee of 84 basis points a year. Financials, Energy and Information Technology are the top three sectors of the fund, with 23.2%, 18.8% and 18.1% allocation, respectively (as of Feb 26, 2018). Reliance Industries Ltd, Infosys Ltd and Housing Development Finance Co are the top three holdings of the fund, with 9.1%, 8.1% and 6.2% allocation, respectively (as of Feb 26, 2018). The fund has returned 23.3% in a year. EPI has a Zacks ETF Rank #1, with a Medium risk outlook.

iShares India 50 ETF (JK:INDY)

This fund provides exposure to large-cap Indian equities.

It has AUM of $1.2 billion and charges a fee of 93 basis points a year. Banks, Computer-Software and Refineries/Marketing are the top three sectors of the fund, with 26.2%, 11.6% and 10.4% allocation, respectively (as of Feb 23, 2018). Reliance Industries Ltd, Housing Development Finance Co and Infosys Ltd are the top three holdings of the fund, with 7.9%, 7.2% and 5.7% allocation, respectively (as of Feb 23, 2018). The fund has returned 20.9% in a year. INDY has a Zacks ETF Rank #1, with a Medium risk outlook.

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