Monday, December 05, 2005

Closed-end funds are the best way for the common man to invest in Russia and India

There's been a lot of talk over the past few years about the benefits of investing in Exchange Traded Funds ("ETFs"). Financial writers and advisors tout their tax efficiency, low cost, and instant diversification as several reasons to buy.

Unfortunately, there are a number of market segments for which no good ETFs currently exist. Those include some emerging foreign markets such as Russia and India. Both Russia and India are supposed to be two of the fastest growing economies over the next several decades. It would be nice if there was an ETF that would invest in stocks in each of these countries. Unfortunately, acording to ETFconnect, there is no such ETF right now. However, there are a couple closed-end funds investing in each of these markets.

The best Russian stock market closed-end fund that I've found is the Templeton Russia and East European Fund (ticker symbol: TRF). This fund has been around since 1995 and returned an annualized 20.10% for the 10-year period ending on 10/31/05. However, this fund is not for the faint of heart - although it has had huge gains, such as in 1999 when it gained 133.57%, it has also had huge losses, such as in 1998 when it lost 74.65% when Russia had a currency crisis.

The best Indian stock market closed-end fund that I've found is the Morgan Stanley India Investment Fund (ticker symbol: IIF). This fund has been around since 1994 and returned an annualized 19.09% for the 10-year period ending on 10/31/05. However, this fund is also very volatile - it returned 144% in 1999 after losing 11% and 14% in 1997 and 1998, respectively.

As with all closed-end funds, these do charge higher fees than most ETFs - usually over 1% of assests. Moreover, closed-end fund can also trade at a discount to their underlying net asset values.

***Update - August 7, 2007***
Since I wrote this article back in 2005, a low cost Russia stock market ETF and an India stock market ETN have been introduced. I discussed both the Russia stock market ETF and the India stock market ETN in 2007 posts.


Anonymous said...

How do you find the minimum investment for these stocks? I've been surfing around trying to find them for TRF & IIF, but haven't found them yet... Lot's of other info, but don't know if I can afford to get in yet.

Jim said...

The minimum investment is 1 share. You can purchase TRF or IIF through any brokerage, just like you would purchase a stock.