2023 is almost over. And it’s fair to say this will be another disappointing year for emerging markets (EM) stocks and the related ETFs.
As of October 17, the MSCI Emerging Markets Index sported a year-to-date gain of just 1.2%. Chinese stocks have been a major drag on that benchmark’s performance. This is highlighted by a more than 9% decline by the MSCI China Index. Underscoring the point that there are benefits to considering single-country ETFs. Indian equities are shining bright relative to the broader emerging markets universe.
The MSCI India Index is up 7.5% this year. However, as is the case with stocks the world over, selectivity is key. While the MSCI India Index is impressive relative to the broader emerging markets landscape, it’s lagging the WisdomTree India Earnings Fund (EPI ) by 710 basis points.
Further cementing the case for EPI from a pure performance perspective are the following points. First, the WisdomTree India ETF is trailing the S&P 500 by just 70 basis points this year while displaying annualized volatility that’s 190 basis points below that of the domestic equity gauge. Second, EPI’s throttling of the S&P 500, the MSCI Emerging Markets, China and India indexes isn’t new. The WisdomTree ETF has soundly beaten those indexes over the past three years.
EPI Backed By Sound Fundamentals
Many U.S. investors already know that India is the world’s largest democracy. And it’s Asia’s third-largest economy behind only China and Japan. What they may not be aware of is the country’s impressive growth outlook. That could support the long-term EPI thesis.
Importantly, that outlook is bolstered by a growing middle class and an increasingly tech-savvy consumer base.
“India is on track to become the world’s third-largest economy by the end of the decade, propelled by increased digitalization and a burgeoning consumer class. The same forces are setting up the country of more than 1 billion people to be the fastest-growing smartphone market in the world in the next 10 years,” according to Morgan Stanley research.
Other data points, including GDP and income growth, bode well for EPI’s potential to deliver attractive long-term returns while possibly extending its run of beating rival funds and the broader emerging markets equity universe.
“India’s GDP is expected to more than double over the next decade, reaching $7.5 trillion with expected annual growth of 6.6%. At the same time, per-capita income is expected to double. And the country is projected to have five times as many high-income households by 2031,” concluded Morgan Stanley.
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