An exchange-traded fund referencing Indian stocks, structured using market access derivatives, has just been launched by Citigroup. A first for the market, the Singapore-listed fund is a U.S. dollar ETF referencing the MSCI India index.
Thomas Gillespie, regional head of derivatives strategy at Citi in Sydney, said there is a high level of interest in this market because offshore investors are limited to American Depositary Receipts or access products. "This is an easy way for institutional investors, hedge funds and retail clients to tap this market," he added.
For the structure, U.S. dollar investments are converted by Citi to rupees and invested via the firm's onshore operation into local shares comprising the index. The firm synthetically transfers the index exposure via access derivatives to the ETF issuer and manager, Barclays Global Investors. The ETFs are then sent to the end investors via the market maker. The management fee is 99 basis points and lots are based on 100 units.
Gillespie noted that with the fund now available he expects some interest to shift away from participation notes on Indian underlying, which has become a multi-billion dollar business in recent years. "Over time some of the demand for access products will move away, but this won't happen overnight," he noted.
