Top Ranked Currency ETF: WisdomTree Dreyfus Indian Rupee ETF (ICN)

Eric Dutram: As a result of the optimism generated by some major market reform measures announced by the Indian government recently, foreign investors have poured significant amount of money in the Indian equities over the last couple of weeks.

Renewed interest in the Indian equities and funds sent the Indian stock market indexes and the currency to their multi-month high levels. The Indian Rupee has rebounded strongly from its record low touched earlier in June.

Over the past year, India has been resisting serious headwinds arising out of weak domestic as well as global macro-economic cues. The global economic slowdown, coupled with a weak domestic balance sheet resulting from high fiscal and current account deficit, have been the major obstacles that caused the economy to under perform.

The GDP for the quarter ended March 2012 rose 5.3%, sharply down from 6.1% in the previous quarter. However, the GDP growth rate increased slightly to 5.5% in the quarter ended June 2012. Further, the central bank is left with few choices on the monetary policy front due to threatening inflationary concerns. (read India ETFs: Getting Back On Track?)

The Indian Government finally announced some stern measures in order to reduce its mounting fiscal deficit, despite facing huge resistance from opposition political parties. The Government had its back against the wall as it faced threats pertaining to sovereign rating downgrades from the various credit rating agencies.

The Government proposed that foreign direct investments be allowed in Retail and Aviation industry, hiked diesel prices and put a ceiling on the subsidized domestic energy supplies to tame the rising fiscal deficit and currency depreciation.

The Indian rupee had exhibited a two way movement with a bullish trend until July 2011 when it reached a high of Rupees 43.94/USD. However, there onwards the currency began to depreciate amidst the global uncertainties. (see Indian Rupee ETFs: Is The Slide Over?)

Unpopular and complex tax rules pertaining to foreign institutional investors also led to withdrawal of investments by many foreign investors from the Indian markets. This led to huge downward pressure on the currency as the Indian markets witnessed massive sell offs by the foreign institutional investors.

However, recent policies of the Indian Government are primarily aimed at building an investor friendly climate in the economy, and are likely to further attract institutional flows from abroad. (readTime to Buy the India Infrastructure ETF)

Also, thanks to the announcement of another round of monetary stimulus by the Federal Reserve, the global investors have shifted towards riskier asset classes such as the Indian equities. The Indian Benchmark index, the Nifty 50 rallied almost 2.62% post announcement of QE3 on fresh capital flows from the capital markets.

All these factors have helped the Indian rupee to start an uptrend versus the U.S dollar. Also, given a weak USD in the global currency market on account of fresh money being printed and circulated in the U.S economy (till the domestic U.S jobs market improves substantially), it is clear that the trend is most likely to continue for quite some time (read Long Term Treasury ETFs: Ultimate QE3 Play?).

About the Zacks ETF Rank

The Zacks ETF Rank provides a recommendation for the ETF in the context of our outlook for the underlying industry, sector, style box, or asset class. Our proprietary methodology also takes into account the risk preferences of investors. ETFs are ranked on a scale of 1 (Strong Buy) to 5 (Strong Sell) while they also receive one of three risk ratings, namely Low, Medium, or High.

The aim of our models is to select the best ETFs within each risk category. We assign each ETF one of five ranks within each risk bucket. Thus, the Zacks Rank reflects the expected return of an ETF relative to other products with a similar level of risk.

WisdomTree Dreyfus Indian Rupee ETF (NYSEARCA:ICN) has a Zacks Rank of 1 or ‘Strong Buy.’ ICN was launched in May of 2008 and seeks to achieve total returns by providing returns equivalent to the money market rates in India (which are substantially higher than the near-zero money market rates in the U.S) and the relative appreciation of the Indian rupee versus the U.S. dollar.

The ETF charges an expense ratio of 45 basis points and has attracted only $19.29 million in its asset base so far. Further, a low average daily volume of approximately 8,700 shares, results in a high bid-ask spread ratio for this product (see more in the Zacks ETF Center)

The ETF has had a dismal performance in the past one year returning -15.82% as on 30th June 2012. However, the ETF is up by 5.57% year till date. ICN is up by almost 3.05% since the announcement of QE3 post 13th September 2012 amidst good volumes which is a clear indication that the worst for this product is over.

Written By Eric Dutram From Zacks Investment Research  

In 1978, Len Zacks discovered the power of earnings estimates revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank, a peerless stock rating system whose Strong Buy recommendation has an average return of 26% per year.

Leave a Reply

Your email address will not be published. Required fields are marked *