3 ETF Strategies for China and India

NEW YORK (TheStreet) -- The popularity of China and India as investing destinations has lead to the creation of a broad selection of exchange-traded funds aimed at tracking their respective markets from various vantage points.

Aside from playing either nation independently, using ETFs, investors can combine the strengths of these two economic superpowers, using a "Chindia" ETF to gain exposure to an interesting mix of both Chinese and Indian companies under one roof.

With economic issues threatening to stifle the economic pictures within the United States and much of the developed world, a growing slice of the world economy is turning to the emerging markets as a source of economic potential. Within the realm of emerging markets, perhaps no two nations are as recognizable or as closely followed as India and China.

Boasting massive populations and -- as evidenced by India's nearly 9% GDP growth in the second quarter of 2010 -- breakneck economic growth pictures, these two economic superpowers will certainly be major shapers of global economic and political policy for years to come.

Given the strong prospects and popularity of these two countries, investing in China and India has become a popular area of focus for ETF providers who have opened the doors to a growing number of opportunities for China and India bulls and bears.


Initially, investors looking for a taste of the Chinese markets were forced to settle for ETFs such as iShares FTSE/Xinhua China 25 Index Fund ( FXI), and SPDR China ETF ( GXC)

While they certainly gain exposure to China's economy, their portfolios are laden with large, multinational and state-run companies which may not appeal to investors looking products which are more influenced by the average Chinese citizen.

Luckily, in more recent times, the China-based ETF industry has exploded. Today, tapping into smaller slices of China's economy such as the nation's small-cap market or technology picture has become as simple as holding the Claymore/AlphaShares China Small Cap ETF ( HAO) and Global X China Technology ETF ( CHIB).


While it still has some catching up to do if it wants to compete with the range of fund's dedicated to China's economy, the India-focused ETF industry has also gained impressive traction. Today, the largest and most successful of these products are large-cap focused products such as WisdomTree India Earnings ETF ( EPI) and PowerShares India Portfolio ( PIN). However, fund providers, Emerging Global Shares and Van Eck, have recently unveiled products which allow investors to tap into the small-cap companies which comprise India's markets.

Only a handful of weeks separate the launches of the Market Vectors India Small Cap Index ETF ( SCIF) from the Emerging Global Shares INDXX India Small Cap Fund ( SCIN). Seeing which fund gains the upper hand over the long term will be interesting to watch.


Judging by the number of China-specific and India-specific ETFs in circulation, investing in these two nations as separate entities has proven to be a popular strategy for investors. However, there is one product that combines the strengths of these two countries under one roof.

Recently I spoke with Ryan Issakainen, a VP & ETF Strategist from First Trust, about the company's First Trust ISE Chindia ETF ( FNI). He informed me that FNI is designed for investors who like the growth prospects of both of these popular emerging market nations and are seeking a way to invest in both in a simple way.

The index underlying FNI is structured in a way that it provides investors with balanced exposure to both China and India. The fund's index is comprised of 50 holdings, with a goal of having a mixture of the 25 most liquid companies hailing from each nation.

Major holdings include ICICI Bank ( IBN), HDFC Bank ( HDB), Baidu ( BIDU), and China Mobile ( CHL). FNI's index is a tiered structure, with these top four top holdings accounting for less than 30% of the fund.

The economic and political impact China and India will have on the rest of the world in coming years will certainly be something to watch. Today, investors have ample opportunities at their disposal which allow them to get in on this exciting story.

-- Written by Don Dion in Williamstown, Mass.

Readers Also Like:

At the time of publication, Dion Money Management was not long any of the equities mentioned.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.

More from Emerging Markets

U.S. Considers New Tariffs on Imported Vehicles

U.S. Considers New Tariffs on Imported Vehicles

Video: Here's How Global Stocks Can Boost Your Portfolio

Video: Here's How Global Stocks Can Boost Your Portfolio

Wall Street Looks To Extends Gains After Goldman Earnings Beat, China Data

Wall Street Looks To Extends Gains After Goldman Earnings Beat, China Data

China's President Xi Jinping Tells Boao Forum He Supports Opening Markets

China's President Xi Jinping Tells Boao Forum He Supports Opening Markets

U.S. Stock Futures Steady; Asia Stocks Mostly Lower

U.S. Stock Futures Steady; Asia Stocks Mostly Lower