Australian growth investors tend to focus on the Australian and US share markets, but has the Betashares India Quality ETF (ASX: IIND) been flying under the radar?
India – the investment case
India is the fifth largest economy in the world, and one of the most populous countries (either first or second to China, depending on where you get your data).
It’s also one of the fastest growing economies, averaging GDP growth of 6.33% per year from 2006 to 2024. Compare that to Australia’s 2.4% from 2012 to 2022 and it’s easy to see why we might want to look abroad.
While India is classed as a lower-middle income country, spending power is rapidly expanding as the economy continues to grow.
As India has transitioned from a low income country to lower-middle income, it’s moved away from agriculture and started to build a sizeable services industry. It also remains a major exporter of petroleum products, gems and jewellery, and clothing.
The India ETF
The Betashares India Quality ETF (ASX: IIND) aims to tap into this growth potential and has quietly been one of the best-performing ETFs over the last few years.
IIND filters Indian companies to find the 30 with the highest profitability, low leverage, and high earnings stability.
Over the last 12 months IIND has returned over 19.5% and since inception in 2019 has delivered over 10.5% per year. Unlike some other emerging market or growth ETFs, it also delivers a hefty dividend, with a 12-month distribution yield of 3.5%.
This basically puts IIND in between the likes of the Vanguard Australian Shares Index ETF (ASX: VAS) and the iShares S&P 500 ETF (ASX: IVV).
Importantly, IIND offers significant diversification benefits if you’re heavily invested in either Australian or US markets.
Apart from market diversification, it also offers sector diversification. The ASX 200 is dominated by financials like Commonwealth Bank of Australia (ASX: CBA) and resources companies like BHP Group Ltd (ASX: BHP), while IIND offers a more even spread across financials, consumer discretionary, industrials, and information technology.
These factors all point towards IIND being a good inclusion into a diversified growth portfolio.
The downsides
Probably the biggest drawback of the IIND ETF is the management fee of 0.8%. This is substantially more than you’d pay for the average ASX 200 or S&P 500 ETF.
It’s also important to note that a fairly high percentage of the historical return has been from dividends. This could have tax implications as you’re receiving your growth as distributions rather than capital growth. And remember, because these aren’t Australian companies there are no franking credits to speak of.
So, would I consider it?
If I was looking for a small tactical position as part of a broader portfolio, then I think IIND is a good option for emerging market exposure. With the high management fee and relative uncertainty though, I’d think twice about making this a core position.
