Yesterday (8/25/10), Van Eck launched Market Vectors India Small-Cap Index ETF (SCIF), the second ETF to target India Small-Caps in as many months. Foreign single-country small cap funds are a relatively new growth area for the ETF industry. This marks the first time ETF investors will have a choice in this segment.
The Van Eck press release says Indian small-cap stocks are supported by one of the world’s largest and fastest-growing domestic consumer markets, with a demographic profile skewed toward the young. India’s rapidly growing middle class is projected to triple in size over the next 15 years, making it twice the size of the entire U.S. population. “It continues to be our strong belief that small-cap stocks are an excellent way to gain direct exposure to a country’s domestic economy,” said Jan van Eck, Principal at Van Eck Global. “India, in particular, has exhibited demographic and economic factors that support strong continued domestic growth for years to come.”
SCIF will attempt to capture the performance of the smallest 10% of India’s total market capitalization. Van Eck points out in the Investment Case for India Small-Caps (pdf) that this smallest 10% represents 91.2% of the total number of listed equities in the country. The fund’s expense ratio is capped at 0.85% and the top sectors are Industrials 26.8%, Financials 20.4%, Materials 13.7%, Technology 12.2%, and Consumer Discretionary 11.8%.
There are a total of 122 holdings, with the largest being IFCI 4.7%, Sintex Industries 4.0%, IVRCL Infrastructures & Projects 3.3%, GTL 3.2%, and Nagarjuna Construction 2.8%. The SCIF fact sheet (pdf) lists the top 25 holdings and provides a link to the complete holdings.
SCIF (summary page) will compete head-on with EGS INDXX India Small Cap ETF (SCIN). There are more than 9,000 listed small cap stocks in India, and with SCIF holding 122 stocks and SCIN holding just 75, it is not surprising that there is zero overlap in their top-10 holdings. The EGS fund has done a good job of attracting assets and trading volume even though the brand is unfamiliar to most investors. This is likely to be an area where the Market Vectors fund can gain an advantage.
Both SCIF and SCIN have expense ratios of 0.85%, so the performance winner will be decided by the indexing and sampling methodology employed by each fund.
Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.