Summary

• The Columbia India Consumer ETF passively tracks the Indxx India Consumer Index but has underperformed for US-based investors recently and also over the last ten-year period.
• INCO's market-weighted index methodology lacks a compelling investment thesis and does not factor in valuations or any other aspects for security selection. An expense ratio of ~0.75% remains high.
• Indian equities remain under pressure due to elevated energy prices, along with accelerating INR depreciation, leading to a dual-layered negative impact for a U.S.-based investor.
• The underlying valuation multiples of portfolio stocks remain in a higher range than the headline number on the fund's fact sheet suggests. The P/B of 6x better reflects this aspect.
• INCO is rated a hold, primarily due to a modest possibility of near-term upside. Excluding that, a sell would have also been correct. In addition, the SA quant rating already rates it as a sell.

Columbia India Consumer ETF (INCO) is a passive ETF tracking an index called Indxx India Consumer Index. The index methodology is market weighted and does not really take anything else into account. This is what the index mentions as a methodology for its security selection.

The Indxx India Consumer Index is a maximum 30 stock free-float adjusted market capitalization weighted index designed to measure the market performance of companies in the consumer industry in India.

I would say that this index, due to its methodology, in substance largely has a utility for tracking the underlying sector of Indian equities, rather than anything else, especially for replicating the underlying portfolio. We can think of it as a tracking tool instead of considering it as a vehicle for allocation. The valuations of this sector still trade at a premium to broad-based Indian equities, and also considering recent developments in energy prices and currency depreciation, it would be better if investors avoid this ETF for the time being. An expense ratio of 0.75% for a passive index tracking fund looks on the higher side as well.

Moderate Performance

The index has significantly underperformed the S&P 500 ETF (SPY) over the last ten-year period. I don't think performance, when also taking into account the specific risk factors associated with investing outside the home country, would tend to justify these results. The reason for the underperformance also, to an extent, has to do with the depreciation of INR versus the dollar, a point which I would discuss further. And a ten-year period is not an entirely short horizon for a comparative performance evaluation of an ETF.

In addition, Indian equities have also not been performing well over more recent timeframes as well, both versus US equities and also on an absolute basis. The reason for this is the

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