U.S. Investors Flock to India ETFs in 2024: Chasing Growth and Diversification

A Shift in Strategy

2024 is witnessing a significant shift in U.S. investor sentiment towards emerging markets. Previously popular broad emerging market funds and multinational ETFs are being sidelined in favor of single-country focused funds, particularly those with strong growth prospects. This trend reflects a growing desire for targeted exposure to markets with the potential for high returns.

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India’s Stellar Performance

Leading the charge is India, a nation experiencing a period of robust economic expansion. U.S.-listed India ETFs have garnered nearly $2.7 billion in net inflows this year. The iShares MSCI India ETF (INDA), the largest such fund, has attracted a staggering $1.5 billion. This investor enthusiasm translates to impressive performance. INDA has risen 5.6% in the past four months, handily outperforming the broader Emerging Markets ETF (EEM) which has gained 5.3% year-to-date.

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Beyond Headline Numbers

Looking beyond the headline figures, a more compelling story emerges. Indian equities have significantly outpaced their emerging market counterparts over the past year. INDA ETF boasts a 24.4% gain compared to EEM’s more modest 8.1% rise. This outperformance is fueled by India’s strong economic fundamentals. In 2023, India’s GDP growth (around 7.5%) surpassed China’s (5.2%). The Indian stock market has also displayed resilience, with the Nifty 50 surging over 20% in the past year, while China’s Shanghai Composite Index slumped by 6%.

Geopolitical Tailwinds

Geopolitical tensions between the U.S. and China are adding another layer to India’s appeal. As these tensions escalate, many U.S. tech giants are actively exploring India as a viable alternative for their supply chains. This potential shift creates a win-win situation for both Indian and U.S. investors, further fueling interest in Indian equities.

A Note of Caution

While single-country ETFs offer the potential for high rewards, they also come with inherent concentration risk. Investors seeking a more balanced approach may be better served by broader emerging markets or international ETFs that offer greater diversification.

While investors are increasingly drawn to the high potential returns offered by single-country exposure, diversification remains a cornerstone of a sound investment strategy. Broader market ETFs can help mitigate risk and ensure a well-rounded portfolio.