Consumer Spending in India

12/28/2016 10:00 am EST

Focus: ETFs

Doug Fabian

Editor, Successful ETF Investing, ETF Trader's Edge, Weekly ETF Report, and ETFU.com

Sector-specific ETFs seek holdings where companies share a related product or service. This featured ETF concentrates on India's fast growing economy, notes Doug Fabian, in his Weekly ETF Report.

As the name of the fund suggests, the Columbia India Consumer ETF (INCO) fully concentrates on investments in the consumer industry in India.

Since inception in 2011 under the brand EGShares, INCO’s policy has been to hold a maximum of 30 Indian market-cap-weighted consumer stocks.

Each of the 30 securities is capped at a maximum weight of 7% of the total portfolio, which helps to provide diversification and more balanced exposure to the Indian consumer sector.

One of the biggest risks investors may face when considering INCO is the fund’s low total assets under management of only $77.81 million.

This subjects the fund to liquidity risk and results in relatively high management fees, as is evident in its expense ratio of 0.89%.

However, this does not take away from INCO’s potential. A study by the World Bank has shown that consumption in India is predicted to double from 2015 to 2025.

India clocked in as the fourth-fastest-growing economy in the world in 2016 and annual gross domestic product (GDP) growth of 7.5%, according to the World Economic Forum.

To put this in perspective, U.S. GDP has grown by 1.8% this year and China, another emerging markets leader, has grown by 6.7%.

INCO provides exposure to Indian companies in the field of automobiles, food, beverages, media and other household products, which all stand to gain from increased consumption brought on by a fast-growing economy.

Several of INCO’s top holdings are automobile-related. If India’s consumption continues to rise as forecasted, automobile manufacturers and distributors could very well be leaders in the Indian economic surge.

To take advantage of India’s projected growth, I encourage you to look at Columbia India Consumer ETF as a potential addition to your portfolio.

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