Indian equities have had a poor YTD (year-to-date) 2015 until August 24—that date is especially important as the S&P BSE Sensex fell over 1,600 points to record one of its worst falls in history. The fall impacted Indian ETFs like the iShares MSCI India ETF (INDA) and the WisdomTree India Earnings ETF (EPI), whose price returns adjusted for dividends stand at -10.1% and -15.5% YTD, respectively, until August 24.
One of the fundamental differences between the two ETFs is the number of holdings. EPI, which is benchmarked to the WisdomTree India Earnings Index, had 234 stocks in its portfolio as of August 24. On the same date, INDA, which is benchmarked to the MSCI India Total Return Index, had 71 stocks in its portfolio. Even after being more diversified, EPI fared worse than INDA. Let’s see why.
Sectoral exposure and performance
Compared to each other, INDA is overweight on the consumer staples, healthcare, information technology, and telecom services sectors. On the other hand, EPI is overweight on the energy, financials, and utilities sectors. These three sectors have been among the hardest hit in YTD 2015. As nearly half of the EPI’s assets invested in these three sectors combined, this ETF fell more than INDA, even after having a much higher number of stocks in the portfolio.
This tells you how the macroeconomic environment can impact certain specific sectors, which can, in turn, impact your investments focused on that geography, via the sectoral exposure of that instrument.
Among the funds that we looked at in this article, INDA’s higher exposure to defensive sectors like healthcare helped it reduce some of its losses.
From India, let’s head to its neighbor that has been headlining financial news recently: China.