With India out of favor, a closed-end fund looks better

Posted by: Aaron Pressman on September 12, 2006

As an update and follow-up to my entry back in June dissing a new Powershares exchange-traded fund that invests in U.S.-traded shares of Indian companies, I’ll respond to a few emails I received about the original entry.

On Monday, one reader noted that the premium on the closed-end India Fund (Symbol: IFN) managed by Blackstone Asia Advisors has dropped from 26% in June to less than 1% now. There’s a great chart on ETFConnect’s page for the fund that tracks changes in the share price versus changes in the net asset value. As you can see, Indian stocks peaked back in April along with the fund’s premium. Since April, both the underlying Indian market (as represented by the NAV) and the closed-end fund’s share price have tanked, but the share price has dropped harder. Thus, the premium has collapsed because even with the Indian market falling, sentiment among closed-end fund buyers has dropped even more. That’s a pattern that has often rewarded investors in the past who bought on such dips in country funds.

A second email asked about the iShares MSCI India ETF that is based on a real India index. That is, the fund actually owns shares of dozens of Indian companies trading there. It’s more diversified and owns more companies than the Powershares product. But one catch — and it’s a showstopper — the iShares fund is only traded in Singapore! I called the pr departments of a couple of discount brokers and was told by spokespeople that Schwab and TD Ameritrade don’t allow access by ordinary investors to such securities. I’ve seen some bloggers write otherwise, but that was the official word I was given. A spokeswoman at Fidelity never got back to me.

Updating my update — Richmond, Va., investor John Bethel has explained how he buys overseas shares at Schwab (by phone, not online) on his Controlled Greed blog.

Reader Comments

david hepworth

March 14, 2008 12:26 AM

We have created a site which discusses some of the vagaries of the various India funds and ETF's. www.indiafund.net Please feel free to drop by.

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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