Going Small With A Big Country

Published on Tuesday, 21 February 2012 21:12 Written by Todd Shriber

New York, February 21^st (TradersHuddle.com) – India often plays second fiddle to China, literally. India is the world’s second-largest country by population. China is the largest. India is the world’s second-fastest growing major economy. China is the fastest-growing major economy. There are nearly 230 ETFs offering exposure to China and just under 110 that grant access to India. Oh well, at least India can lay claim to being the world’s largest democracy. And there is the expectation in some circles that India will one day surpass both the U.S. and China for the title of world’s largest economy.

While we wait for that to happen, Indian ETFs look like they’re ready to stop playing second fiddle to their Chinese counterparts. Year-to-date, the WisdomTree India Earnings ETF (NYSE: EPI) is up almost 31% compared to "just" 15% for the iShares FTSE China 25 Index Fund (NYSE: FXI). More impressive still is the fact that this level of outperformance is even more magnified with small-cap ETFs. The EGShares India Small Cap ETF (NYSE: SCIN), the first India-specific small-cap ETF to come to market, is up 45% year-to-date compared to 20% for the Guggenheim China Small-Cap ETF (NYSE: HAO).

SCIN debuted in July 2010 and was soon followed by the Market Vectors India Small-Cap ETF (NYSE: SCIF). Both ETFs have been stellar performers in 2012 and both have expense ratios of 0.85%, which is high by the standards of unleveraged passively managed ETFs. Earlier this year, both funds got a new rival in the form of the cheaper iShares MSCI India Small Cap Index Fund (NYSE: SMIN), but for now it’s safe to say SCIN and SCIF are the dominant players when it comes to India small-caps.

SCIN offers exposure to seven sectors with staples and financials dominating at a combined allocation of over 48%. Industrials, with a weight of 17.4%, are the only other group with a double-digit weighting. The ETF is currently home to 76 stocks with a median market cap of $500 million. The ETF’s top-10 holdings combine for just over 28% of the fund’s weight.

Those are the vital stats, but what investors want to know is whether or not SCIN’s run is over. Fair question when considering the ETF was flirting with $11 at the start of the year. The smart money says if 2012 continues along its current trajectory, SCIN’s run is not over and the ETF has a chance to reclaim its all-time near just over $20. All while outperforming China along the way.

Ideally, SCIN would pull back to around $16 and find support at its rising 200-day moving average so late comers could buy on a dip before the ETF makes its next leg higher.