Positioning investors’ portfolios to absorb any potential shock to the Euro by diversifying into non-Euro and uncorrelated assets such as Sun Global’s Indian SOE bond could be a hedge going into an uncertain year ahead.
In the finance world, ETFs have seen a massive surge in popularity as of late, grown nearly 60% in 2016 alone. The rapid expansion of ETFs comes at a time when the business of selling and trading bonds is being transformed by tougher regulations and higher capital costs hitting the Wall Street banks that have long dominated the industry.
ETFs already outstrip hedge funds by about 3.4tr USD, or by over 10%. The ETF industry has attracted assets from the hedge fund sector as hedge funds find it harder to justify their higher fees and inconsistent performance numbers versus a passive ETF investment which can offer diversified exposure at a fraction of the cost of a hedge fund. Add to this the instant liquidity or exchange traded component of an ETF and the ETF offers certain investors a more predictable investment return with lower volatility.
Previously, hedge funds were the go to solution for investors looking for uncorrelated or entry points too hard to access asset classes such as Indian onshore fixed income; however, now with ETFs such as the Sun Global Zyfin Indian Fixed Income SOE UCITS ETF, asset managers can access the asset class via a UCITS approved structure with exchange traded liquidity and lower fees. Throw into the mix physical backing as well and the investment case for such ETFs can be compelling.
Lighthouse beaming light ray over stormy clouds.
Summary
European investors observing Sterling and Gilts losses caused by UK BrExit woes should look at the performance of a small Indian focused ETF about to celebrate its first anniversary. The Sun Global Zyfin SOE Indian Bond ETF has returned over 32% for sterling based investors in the past ten months. The Euro tranche is up and so is the Dollar class a 8.5%. The growth rate experienced through ETFs in the emerging markets is far superior and viable than any place else. The time is right to cross the overcrowded financial street, and we highly recommend looking east before you do it.