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A New Spin On India ETFs

ETF Professor

India is one of the largest emerging markets, a fact reflected by its almost 9.1 percent weight in the MSCI Emerging Markets Index, making it the fourth-largest country weight in that widely followed benchmark.

What Happened

Like other large emerging markets, such as Brazil, China and Russia, India is home to a wide assortment of state-owned enterprises (SOEs), or companies that are majority controlled by the government. Many traditional, large-cap India exchange traded funds feature significant exposure to those companies, but a new fund takes a different approach.

The WisdomTree India ex-State-Owned Enterprises Fund (NYSE:IXSE) debuted Thursday as the newest U.S.-listed India ETF.

Why It's Important

As its name implies, IXSE excludes Indian SOEs. IXSE's underlying index, the WisdomTree India ex-State-Owned Enterprises Index, defines those companies as firms in which government ownership exceeds 20 percent of shares outstanding.

The concept of excluding SOEs in emerging markets ETFs isn't new for New York-based WisdomTree. The firm also offers the $148.33 million WisdomTree China ex-State-Owned Enterprises Fund (NASDAQ: CXSE) and the $312.33 million WisdomTree Emerging Markets ex-State-Owned Enterprises Fund (NYSE: XSOE).

“By excluding SOEs, IXSE potentially provides an alternative way to gain beta exposure to the private sector companies in India and excludes unprofitable banks and financial firms,” said WisdomTree in a statement.

The new IXSE allocates over 38 percent of its combined weight to the technology and consumer discretionary sectors while financial services stocks represent 13.11 percent of the new fund's weight. That's well below the 24.65 percent weight to financial stocks found in the MSCI India Index. That India benchmark devotes just 26.4 percent of its combined weight to technology and consumer cyclical stocks.

What's Next

Time will tell what comes of IXSE, but some evidence suggests excluding SOEs is a rewarding emerging markets strategy. For example, the aforementioned XSOE is beating the MSCI Emerging Markets Index over the past year.

Additionally, WisdomTree has experience with India ETFs. The $1.35 billion WisdomTree India Earnings Fund (NYSE: EPI) is one of the largest India ETFs trading in the U.S.

The new IXSE charges 0.58 percent per year, or $58 on a $10,000 investment. That fee is potential advantage for IXSE as it makes the new fund one of the least expensive India ETFs in the U.S.

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