Van Eck announced on Wednesday the latest addition to its ETF product lineup, rolling out the Market Vectors Small Cap India ETF (SCIF). The new ETF will seek to replicate the performance of the Market Vectors India Small-Cap Index, a benchmark that includes about 120 constituents with an average market capitalization of approximately $450 million.
SCIF joins two existing Market Vectors ETFs offering exposure to small cap equities in emerging markets, including the Brazil Small Cap ETF (BRF) and Latin America Small Cap ETF (LATM). ETFs from other issuers offer exposure to small cap stocks in China (HAO) and Japan (SCJ, JSC). Funds targeting small cap stocks in international market have become popular with investors in recent years because they generally maintain unique risk/return profiles relative to the “first generation” of international equity ETFs that are dominated by large caps. Small cap stocks tend to depend more heavily on the local economy, while mega caps are often multi-national firms that generate revenues in countries around the globe and thus are not necessarily the best representation of their respective local economies. Moreover, small cap equities tend to be more representative of sectors that aren’t adequately represented by mega caps, including consumer products and services [also read Emerging Market ETFs: Where's The Consumer Exposure?].
With emerging markets continuing to race ahead of the developed world, investor interest continues to surge. India in particular has emerged as a promising–albeit risky–economy thanks to favorable demographic trends and the vast untapped potential of the economy. “We are very excited to add SCIF to our growing lineup of emerging market small‐cap ETFs,” said Jan van Eck, Principal at Van Eck Global, in a press release. “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. India, in particular, has exhibited demographic and economic factors that support strong continued domestic growth for years to come.” [see all the ETFs that offer exposure to India by using our new Country Lookup Tool]
India’s middle class is expected to triple in size over the next 15 years, making it twice the size of the entire U.S. population. As India’s population moves from rural areas to cities and begins non-agricultural employment, discretionary income is expected to surge. That is expected to lead to a dramatic increase in the demand for cell phones, electronics, and other goods that are currently beyond the reach of the majority of India’s population.
From a sector perspective, the index underlying SCIF is heaviest in industrials, financials, and materials. Energy, which makes up as much as 25% of large cap India ETFs, accounts for just 6% of the benchmark [also see India Infrastructure ETF Hits The Market].
Disclosure: Long BRF, SCIN.