Howard Lindzon, originally from Toronto but now splitting his time between Phoenix and San Diego, is a long-time FinTech venture capitalist whose observations about business and investing are not to be missed.
On March 1, Lindzon blogged about India and the country’s potential, pointing out that Facebook’s WhatsApp has 200 million users in the country — an amazing statistic.
Lindzon sees big things for American companies looking to do business in India; Prem Watsa, who’s from India, has invested heavily in that country’s insurance industry through Fairfax Financial Holdings Ltd. (TSX:FFH). Expect Watsa to continue ploughing money into the country’s rapidly expanding economy.
Here are three ways I believe you can benefit from India’s growing middle class.
Fairfax India
This is actually the second way to invest in India. The first is to buy Fairfax stock, whose holdings include a 28.1% economic interest in Fairfax India Holdings Corp. (TSX:FIH.U) but, more importantly, 95.1% of the votes. Watsa is a great investor; you want him in control.
In August, I recommended that investors buy its stock. It’s up 21.3%, but I still think it’s a great buy.
In the year ended December 31, 2016, Fairfax India delivered $1.01 earnings per share, which was 140% higher a year earlier. That’s an 8.3% return on assets (ROA), more than double the ROA in 2015.
In mid-February, Fairfax India announced that it had completed its purchase of 51% of Saurashtra Freight, a company that operates the largest container freight station at Mundra Port (Gujarat), the fastest-growing port in India.
Like the parent, It’s exciting to see what investments will come next as Fairfax India tries to keep up with all of the opportunities coming its way.
iShares ETF
Well, as ETFs go, the iShares Index ETF (TSX:XID) isn’t cheap with an annual management-expense ratio of 1%, but given there aren’t many options in Canada when it comes to capturing the Indian market, this is one of the more obvious choices.
XID tracks the Nifty 50, which invests in 50 of India’s largest companies, including ITC Ltd., a conglomerate that got its start in cigarettes — it was the Indian outpost for Imperial Tobacco, makers of brands such as Players, Silk Cut, and many more — but it has diversified into many different segments of the Indian economy.
Financials represent 32% of the ETF’s $49.4 million in total assets followed by information technology at 14%, and consumer discretionary stocks are a close third with 11%. Its top 10 holdings account for 49.9% of the overall portfolio.
Since inception, XID has achieved an annualized total return of 5.9%, which is slightly less than its Nifty 50 benchmark. However, year to date it’s up 9.5% — significantly higher than both the Nifty 50 and S&P/TSX Composite.
Excel India mutual fund
Excel Funds is known for its Asia/Pacific mutual funds and actually has two India-focused products: the Excel India Fund and the Excel New India Leaders Fund.
The first is the largest India-focused mutual fund in Canada with $245 million in assets under management as of January 31, 2017. However, it’s not cheap. The A series, which was launched in April 1998, has an annual management ratio of 3.3% — 230 basis points higher than XID. That’s the price you pay for active management.
Performance-wise, it’s had some strong years since 2006, delivering +10% annual returns in seven out of the last 11 years; in 2014, it gained an eye-popping 52.6%. It’s also important to point out that five of its top 10 holdings are different from the XID, providing mutual fund shareholders with the knowledge that it truly is actively managed.
The second fund has a slightly lower annual management expense ratio at 2.93% — 37 basis points less than Excel India. Started in April 2016, it’s managed to bring in slightly less than $5 million in total assets using a more focused approach with just 30 holdings or about half its bigger stablemate.
Unlike Excel India, which invests in large-cap stocks exclusively, Excel New India Leaders invests primarily in smaller companies with only 19% allocated to large caps with the rest scattered between mid caps and small caps.
Bottom line
I really like what Prem Watsa is doing outside Canada, so if it were my money, I’d go with Fairfax India. However, if passive investing is your game, XID is a great choice to cover the major players in India. Because of the high fees, I’d pass on the mutual funds.
