Q: Hello, Pat. I have exposure to India by owning the iShares India 50 ETF. One of my general concerns about owning ETFs is that when there is a market downturn, many investors will sell, forcing the ETF manager to sell at a low price, thereby hurting the ETF’s return. On the other hand, if I own a blue chip stock, I can hold it through the downturn thus avoiding realized losses. So, I am considering replacing INDY with an Indian bank stock, such as HDFC Bank. My assumption is that the bank stock should reflect India’s overall economic performance over the long term. What are your thoughts on this strategy and on HDFC Bank? Regards.
A: The iShares India 50 ETF, $34.71, symbol INDY on New York (Units outstanding: 21.7 million; Market cap: $753.2 million; www.blackrock.com/us), aims to track an index composed of 50 of the largest Indian stocks.
ETFs, such as this one, are a lot like conventional, open-end mutual funds. They hold a diversified portfolio of stocks (usually tracking an index, in the case of ETFs), and the managers get a fee for their services.
The key difference is that open-end mutual funds stand ready to sell new fund units or redeem existing fund units on demand. ETFs, on the other hand, work with a fixed asset base invested in a portfolio of securities. The value of those assets rises and falls, depending on how the ETF managers invest. The units of an ETF trade like stocks, and mostly on a stock exchange, whereas mutual funds redeem their units through the fund manager, based on the net asset value at the end of each day.
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