In light of the burgeoning growth in India, U.S. investors might want to consider iShares MSCI India ETF (BATS:INDA), the largest ETF targeting the country. Additionally, a smaller yet compelling option is the Franklin FTSE India ETF (NYSEARCA:FLIN). Both of these ETFs present unique avenues for investors to tap into the Indian market, especially given that many Indian companies are not directly listed on U.S. exchanges. However, I like one of these ETFs better than the other, and this article will explain why.
Why Invest in Indian Stocks?
The International Monetary Fund (IMF) recently forecast that India will post real GDP growth of 6.3% in 2024. This easily outpaces the forecast for developed markets, which the IMF expects to grow by just 1.4%.
Beyond 2024, India looks like an attractive market based on its young and growing population, now the world’s largest after surpassing China. India also has the world’s largest population of people aged 15-24 years old, which is key to driving long-term growth in consumption and productivity. More Indians joining the global middle class as the economy continues to grow should also fuel increased consumption for years to come.
What are INDA and FLIN’s Strategies?
INDA, the $6.1 billion ETF from iShares, is a popular choice for investors looking to gain exposure to the Indian market. INDA seeks to give investors exposure to large and mid-sized companies in India by investing in its underlying index, the MSCI India Index.
Similarly, FLIN also seeks to give its investors exposure to large- and mid-cap Indian stocks through its own underlying index, the FTSE RIC Capped Index.
Comparing Their Holdings
INDA offers its investors decent diversification. It holds 123 stocks, and its top 10 holdings make up a reasonable 40.9% of assets. You can gain an overview of INDA’s top 10 holdings below with TipRanks’ holdings tool.
INDA’s largest holding is India’s largest company by market cap, Reliance Industries, a conglomerate involved in everything from energy and steel to telecom. INDA is well-diversified across all sectors of the Indian economy. Financials like large-cap multinational ICICI Bank (NYSE:IBN) and others combine to make financials the fund’s largest sector with a weighting of 26.9%.
Information technology, represented by Infosys (NYSE:INFY), accounts for a weighting of 13.6%. Consumer discretionary and energy are the two other sectors with double-digit weighings, coming in at 11.3% and 10.6%, respectively.
Meanwhile, FLIN is more diversified than INDA, with 211 holdings. It is also less concentrated than INDA, as its top 10 holdings make up just 34.2% of assets.
Below is an overview of FLIN’s top 10 holdings by market cap using TipRanks’ holdings tool.
Like INDA, Reliance Industries is FLIN’s top holding, and the fund is also similar to INDA in terms of its breakdown by industry. With a weighting of 22.4%, financials are FLIN’s top sector. Information technology is the fund’s second-largest sector, with a weighting of 13.4%. Energy, consumer discretionary, and basic materials all account for double-digit weightings as well.
INDA has posted decent returns over the years. As of the end of August, the ETF has returned 2.4% over the past year and 11.9% over the past three years on an annualized basis. The fund has returned 6.0% on an annualized basis over the past five years and 9.3% on an annualized basis over the past 10 years.
Meanwhile, over the past year, FLIN returned 5.1%, outpacing INDA. Its three-year annualized return stands at 14.1%, and over five years, it delivered 6.9%, both surpassing INDA. Nevertheless, FLIN launched in 2018, so it doesn’t have a 10-year track record.
While the longer-term results of both funds are less exciting than their three-year annualized returns, if India continues to grow at its current pace, future results could easily exceed these past results.
Fees and Expenses
FLIN has outperformed INDA, but comparing the cost of these two funds is where it pulls away further and emerges as a clear winner.
While INDA sports a relatively high expense ratio of 0.64%, FLIN looks like a hidden gem within the space. Its modest expense ratio of 0.19% is the lowest among India-focused ETFs.
An investor putting $10,000 into INDA would pay $64 in fees during the first year of their investment compared to just $19 for an investor putting the same allocation into FLIN. However, the real difference begins to emerge over the long term, as these fees begin to compound over time.
Assuming both funds retain their current expense ratios and that each fund returns 5% per year going forward, over the course of the next 10 years, the FLIN investor would pay just $241 in fees. On the other hand, the INDA investor would pay a much higher $798 in fees. As you can see, FLIN only charges about one-third of what INDA does, proving that you don’t always have to pay more for better performance.
Below, you can take a look at a comparison between INDA and FLIN created using TipRanks’ ETF Comparison Tool, which enables investors to compare up to 20 ETFs at a time across a wide variety of criteria.
One additional note here is that both INDA and FLIN pay dividends. INDA currently yields 0.2%, while FLIN features a higher dividend yield of 0.7%. However, it should be said that neither of these yields is likely to move the needle for dividend investors.
In conclusion, these are both good ETFs. A rising tide should lift all boats, and I believe that both of these ETFs should continue to perform well as India continues its ascendance within the global economy.
The lesser-known and less heralded FLIN has outperformed INDA over the past year, three years, and five years. FLIN also gives investors greater diversification, and it features a far cheaper expense ratio than INDA. Therefore, I like FLIN better than its bigger and better-known counterpart, going forward.