 "Where are FIIs investing? Best-performing India-focused offshore equity funds")
The asset base of the India-focused offshore funds and ETFs category swelled during the quarter ended December 2023 following the sharp rally in the Indian equity markets and robust net inflows. Assets surged by a huge 20.6 per cent through the quarter to $72.2 billion from the $59.8 billion recorded in the previous quarter, showed data analysed by Morningstar.
The India-focused offshore fund and ETF category registered a gain of 10.75% during the quarter, whereas the MSCI India USD Index delivered a return of 11.98%.
Quarterly Returns
Quarterly Returns
The average performance of the India-focused offshore fund and ETF category registered a robust gain of 10.8% during the quarter, mirroring the overall upward trend of the Indian equity market. Similarly, the MSCI India USD Index, too, posted a growth of 12.0% during the quarter that ended December 2023. Over one year, the performance of the category has been superior to the index, but over a three-year time frame, it has underperformed the index.
"Most India-focused offshore funds are actively managed and have expense ratios substantially higher than ETFs. Their continuing popularity, despite higher expenses, indicates that many foreign investors prefer active management over passive when it comes to investing in India.On the other hand, the offshore ETFs' lower expense ratio is certainly helping them gradually gain traction and increase market share. That said, ETFs also offer easy exit options and are more cost-efficient than funds, many of which charge for early exits. Given these benefits, investors recently have used this mode of investment extensively to easily move in and out of the country's equity markets, in line with their fast-changing views on the investment opportunity it offers," said Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Adviser India.
"Most India-focused offshore funds are actively managed and have expense ratios substantially higher than ETFs. Their continuing popularity, despite higher expenses, indicates that many foreign investors prefer active management over passive when it comes to investing in India.On the other hand, the offshore ETFs' lower expense ratio is certainly helping them gradually gain traction and increase market share. That said, ETFs also offer easy exit options and are more cost-efficient than funds, many of which charge for early exits. Given these benefits, investors recently have used this mode of investment extensively to easily move in and out of the country's equity markets, in line with their fast-changing views on the investment opportunity it offers," said Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Adviser India.
During the December 2023 quarter, iShares MSCI India ETF received the highest net inflows of around $1.23 billion. This fund was the second-highest recipient of flows in the previous quarter when it received a net inflow of $874 million.It was followed by iShares MSCI India ETF USD Acc and WisdomTree India Earnings ETF, with net inflows of $681 million and $512 million, respectively.
5 Top and Bottom India-Focused Offshore Funds and ETFs by Estimated Net Flows in Q4 2023 (in USD Millions)
5 Top and Bottom India-Focused Offshore Funds and ETFs by Estimated Net Flows in Q4 2023 (in USD Millions)
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The assets of the 10 largest India-focused offshore funds and ETFs shot up by a huge 23% during the quarter ended December 2023 to $31 billion from $25 billion in the previous quarter. These funds account for almost 43% of the India-focused offshore fund and ETF category's assets.
IShares MSCI India ETF continues to retain its top spot as the largest fund in the India-focused offshore fund and ETF category. During the quarter, it received net inflows of $1.23 billion, which propelled its asset size by a massive 30.8% to $7.90 billion from $6.04 billion in the previous quarter.
WisdomTree India Earnings ETF recorded the highest growth in assets at 52.2%, driven by strong returns and a quarterly net inflow of $512 billion.
SMDS High Growth India Mid-Cap Equity recorded the lowest growth in assets at 1.40%, which could be attributed to the net outflows of USD 94 million it witnessed during the quarter.
10 Largest Offshore India-Focused Equity Funds and ETFs
10 Largest Offshore India-Focused Equity Funds and ETFs
5 Best- and Worst-Performing India-Focused Offshore Equity Funds and ETFs in the Quarter Ended December 2023
Samsung dominated the top-performing funds list during the quarter. The top five performers were Samsung funds. Driven by strong mid- and small-cap rally, Samsung India S-M Foc Fdr Eq-Drv Ae Hdgd, Samsung Classic India SM Pension FdrEq-Drv Ce Hdg, and Samsung India S-M Focus Master Equity were the top three performing funds during the quarter. They were followed by Samsung India S-M Foc Fdr Eq Ce Unhedged and Samsung India Feeder Equity-Deriv 3 A. Except for Samsung India Feeder Equity-Deriv 3 A, all the other funds delivered strong performance over the one- and three-year periods as well, outperforming the category as well as the index.
Over a one-year period, India-focused offshore funds and ETF category delivered a return of 22.3%, outperforming the MSCI India USD Index's 21.3% return. None of the funds from the category delivered a negative performance over a one-year period.
As seen in the table below, Capital India Medium & Small Cap Eq TWD, a Taiwan-domiciled fund, was the best performer over the one-year period, returning 46.6%.