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WisdomTree to launch pioneering India exchange-traded fund

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New York-based WisdomTree Investments has announced that the WisdomTree Trust plans to launch an earnings-weighted India exchange-traded fund in the second half of next month, the first ET

New York-based WisdomTree Investments has announced that the WisdomTree Trust plans to launch an earnings-weighted India exchange-traded fund in the second half of next month, the first ETF to offer pure exposure to local Indian securities to be cleared for launch by the Securities and Exchange Commission.

‘Launching this fund represents an important milestone for the ETF industry,’ says WisdomTree chief executive Jonathan Steinberg. ‘Investors have been increasing their allocations to India, but they have not yet had an ETF that provides direct exposure beyond the limited universe of American Depositary Receipts available in ETFs today.

‘Additionally, most products providing Indian equity exposure are not open-ended funds and can thus have a greater tendency to trade significantly away from their underlying value.’

In addition to offering investors exposure to a traditionally difficult to access market, the new fund will employ a fundamentally-weighted indexing strategy. WisdomTree is aiming to reduce the potential risks that it believes are associated with investing in emerging markets through market capitalisation-weighted indexes.

The fund, which will select from a broad universe of around 150 profitable companies included in the WisdomTree India Earnings Index on the annual index screening date, will be listed on NYSE Arca.

‘WisdomTree has gone to great lengths to ensure that we are offering a solution in the ETF structure designed to address recent regulatory actions, both by the Internal Revenue Service and Indian regulators, that have impacted the exchange-traded note structure and derivatives linked to Indian equity securities,’ Steinberg says.

The iPath MSCI India Index ETN, which has some USD1.1bn in assets under management, has experienced significant fluctuations in its value relative to the benchmark it tracks, the MSCI India Total Return Index, following rule changes introduced last October by the Securities and Exchange Board of India, the country’s financial market regulator.

The SEBI required all foreign investors to register with it and ruled that participatory notes, including ETNs, could no longer be based on derivatives by foreign institutional investors, preventing the iPath MSCI India Index ETN, which does not hold shares or other securities, from issuing new shares to investors. It is now vulnerable to the premiums and discounts to the benchmark experienced by closed-ended funds.

WisdomTree Trust is a Delaware statutory trust registered as an open-end investment company with the SEC, of which each WisdomTree ETF is a separate portfolio. As of the beginning of January, assets under management in the WisdomTree Trust totalled more than USD4 billion.

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