India's ETFs See Massive Redemptions

It's no secret that May was a rough month for many ETFs, nor is it a secret that emerging-markets ETFs were on the receiving end of a lot of negative sentiment. ETF redemptions can start as a trickle, but when a herd mentality takes over, trickles turn to floods, which is exactly what happened to emerging-markets ETFs last month.
 
According to data from the ETF Industry Association, the Vanguard MSCI Emerging Markets ETF (NYSE: VWO), the largest EM ETF, lost over $6.5 billion in assets last month. The iShares MSCI Emerging Markets Index Fund (NYSE: EEM), the number two EM ETF in terms of assets, saw May redemptions of about $5.7 billion.

Inflation, Falling Rupee...You Name It
In what probably isn't surprising news to those who actively follow and trade emerging markets ETFs, India-specific funds were home to significant redemptions last month as well. Amid the worst inflation of the BRICS quintet, a plunging rupee, rising current account and fiscal deficits and slowing growth, India -- Asia's third-largest economy -- is on brink of being expelled from BRICS to be replaced by Indonesia.
 
Investors seem to be, at best, leery of India ETFs, and at worst, tired of these funds altogether and that much was proven as $455 million was pulled out of India ETFs last month, according to Indian brokerage firm Kotak Institutional Securities. That's not nearly as bad as the $1.29 billion pulled from China ETFs or the $1.26 billion pulled from Brazil ETFs.
 
However, India's ETFs have shown they're vulnerability to these massive redemptions. Since May 1, the WisdomTree India Earnings ETF (NYSE: EPI), the largest India ETF, is off 10% while the Market Vectors India Small-Cap ETF (NYSE: SCIF) has plunged almost 15%.

Assets Under Management
Bloomberg data indicate the combined AUM at the eight largest India ETFs, both those listed in the U.S. and on foreign exchanges, fell 15.7% to $3.64 billion from $4.32 billion.
 
The hardest hit among the U.S.-listed India ETFs were the iShares S&P India Nifty 50 Index Fund (Nasdaq: INDY) and the PowerShares India Portfolio (NYSE: PIN), which saw May AUM declines of 21.75% and 18.8%, respectively. PIN has seen its share price tumble more than 7% since the start of May while INDY is off almost 8.2%.
 
While it should be noted that India's ETFs are getting in on a broader market rally today, the much-needed gains may not be enough to pull EPI and some others out of the bear market territory they recently entered.
 
One day of gains is nice, but the numbers clearly show that investors have soured on India ETFs for the moment. The problem is, the country isn't giving investors a reason to feel any differently.

BY The ETF Professor