Later this week, WisdomTree is launching the first India-only ETF -- the WisdomTree India Earnings Fund (NYSE: EPI), based on its proprietary India Earnings Index. Continuing its pioneering focus on fundamentals-weighted indexing, this index is weighted by the S&P core earnings of Indian companies in the latest fiscal year.

Investors have had access to India via exchange-traded notes, which are slightly different from ETFs. Until recently, the only ETF-like option for U.S. investors aiming at India alone was the iPath MSCI India Index ETN (NYSE: INP), which delivered an incredible 86% return in 2007. However, iPath has been stopped dead in its tracks by India's recent crackdown on such offshore derivatives. It can no longer issue new notes, thus morphing into a closed-end fund competing with the likes of India Fund (NYSE: IFN) or Morgan Stanley India Investment Fund (NYSE: IIF). For investors looking for a true ETF, WisdomTree's offering will be the first to market.

Better risk profile
Compared with the iPath ETN, WisdomTree's core-earnings-weighted ETF presents a better risk profile in a number of ways.

First, iPath's benchmark, the MSCI India Total Return Index, is weighted by market cap. That means it overweights expensive, "hot" stocks, while investing only small amounts in cheaper, unloved ones. In contrast, WisdomTree's underlying index focuses on a key business fundamental -- earnings power. To make it into the index, a company has to be among the top Indian companies in terms of net income for the last fiscal year, adjusted for availability of shares to foreign funds. This is a significant tip of the hat to the conservative investor, especially given how trendy India is right now.

In addition, the ETF uses a screening process that removes one-time and non-operating gains, losses, and write-offs, thus focusing on the long-term earning power of the core operations of the business.

Real stocks
As a genuine ETF, the WisdomTree offering is backed by actual ownership of the underlying stocks. In contrast, exchange-traded notes must take on the additional credit risk of the issuer. Although iPath's issuer, Barclays (NYSE: BCS), has a relatively solid AA rating, the current troubles in the credit markets make this risk more noticeable.

The ETF's holdings are also more diversified. WisdomTree's fund has 147 stocks in its portfolio, compared with 62 for the iPath ETN. The fundamental weighting also makes top positions less concentrated, spreading out exposure to the entire Indian market.

Single-country risk
Investing in an ETF for a single country -- compared with a region or a sector -- requires a much higher tolerance for risk. A single-country ETF can be thinly traded, exposing you to the higher costs of wide bid-offer spreads and possible delayed transactions. For example, iShares MSCI France ETF (NYSE: EWQ) has an average trading volume of 116,900 shares, compared with nearly 1.2 million for the broader iShares S&P Europe 350 ETF (NYSE: IEV).

The narrow focus of single-country ETFs also makes them more of a roller-coaster ride than regional or sector funds, which tend to have offsetting stakes in other sectors or countries.

One reason investors use single-country funds is to tweak existing allocations toward a country that may be underrepresented. Putting any significant portion of one's portfolio into one country alone -- particularly an emerging market like India -- would be too risky for most individual investors. After carefully weighing the benefits versus the risks, investors with a good understanding of their own risk tolerance and long-term investing goals should find WisdomTree's new India-only ETF just right for fine-tuning their investing strategies.

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