WisdomTree has launched a new ETF – the WisdomTree India ex-State-Owned Enterprises Fund (IXSE US) – on NYSE Arca, providing exposure to Indian equities while excluding firms with significant government ownership.
The fund provides exposure to Indian equities while excluding firms with more than 20% government ownership.
The fund is linked to the WisdomTree India ex-State-Owned Enterprises Index which consists of India-listed equities from the parent WisdomTree Emerging Markets ex-State-Owned Enterprises Index.
The parent index is comprised of emerging market stocks, excluding state-owned enterprises (SOEs), with at least $1 billion in market capitalization. SOEs are defined as companies with government ownership greater than 20%.
By excluding SOEs, WisdomTree believes the index provides a more efficient beta exposure for Indian equities. In particular, the methodology tends to exclude unprofitable banks and financial firms, and may also enhance risk/return metrics in capital-intensive sectors such as energy and industrials where dominance by SOEs is typically higher.
Jeremy Schwartz, WisdomTree Global Head of Research, explains, “We believe governments, particularly in emerging markets, may not always be the best stewards of capital, and as a result, government-owned companies might be influenced by a broader set of interests beyond generating profits for shareholders. This can often lead to inefficiencies and can impact the long-term growth potential of these companies.”
The index is weighted by float-adjusted market capitalization and is reconstituted annually in October.
It currently has 77 constituents with around two-thirds of its weight allocated to large-caps (companies with over $10bn market cap) and the remainder in mid-caps (firms with market caps between $2bn and $10bn).
Compared to more-inclusive Indian equity indices, the index tilts toward the consumer economy, resulting in greater exposure to information technology and consumer discretionary sectors, and reduced exposure to financial and energy sectors.
Approximately one-quarter (24.7%) of the index weight is allocated to the software & services industry with the next largest exposures being materials (11.9%), energy (11.1%), automobiles & components (10.7%), and banks (10.0%).
According to WisdomTree, these sector biases are particularly important, as the technology and consumer discretionary sectors have been among the key drivers of emerging market returns and growth.
The top ten constituents of the index account for half its total weight; the largest single stocks are Reliance Industries (11.1%), Infosys (10.3%), and Tata Consultancy (7.8%).
The fund comes with an expense ratio of 0.58%.
The ETF is the third emerging markets fund from WisdomTree to exclude SOEs, following the launch of the WisdomTree Emerging Markets ex-State-Owned Enterprises Fund (XSOE US) and WisdomTree China ex-State-Owned Enterprises Fund (CXSE US) which house approximately $300 million and $150m in AUM, respectively. The broad emerging markets fund also comes with an expense ratio of 0.58%, while the China fund is slightly more expensive, costing 0.63%.