Key Takeaways

• Active exposure in India is crucial to avoid underperforming companies that create performance drag.
• Equity performance in India is driven by company-level fundamentals.
• INDZ seeks to minimize passive index drag through disciplined active selection.

India is a high-dispersion equity market where long-term outcomes are driven primarily by company-level fundamentals. While market-cap weighted indexes provide broad exposure, they also allocate capital indiscriminately across businesses with widely divergent quality, durability, and return potential. This structure embeds persistent performance drag by diluting exposure to the companies that matter most for long-term compounding.

Structural growth, reform momentum, and rapid technology adoption continue to expand India’s opportunity set, but they also sustain index exposure to businesses that lack capital discipline or the ability to adapt. In this environment, owning everything equally is costly. Selectivity is essential to capturing durable returns.

Our mission is to minimize passive index drag by systematically focusing on higher-quality companies with durable earnings power and disciplined valuations.

Why Active Management Matters in India

India’s equity returns are driven by a much smaller subset of stocks than the U.S., meaning that capturing most of the market’s gains in India requires far greater security selection rather than broad index exposure.

What Is the VanEck India Select ETF (INDZ)?

The VanEck India Select ETF (INDZ) is designed to provide selective exposure across high-quality Indian companies, combining active research with rules-driven discipline to support consistent, long-term compounding in a market defined by dispersion.

Smaller Subset of Companies Drive Returns in India

Source: VanEck, FactSet. Data as of February 28, 2006 - January 31, 2026. India is represented by the MSCI India Index. U.S. is represented by the S&P 500 Index. Past performance is no guarantee of future results. Index performance is not representative of fund performance. It is not possible to invest directly in an index.

INDZ’s Philosophy: Active with Systematic Discipline

INDZ’s process is active by design but anchored in systematic discipline. We combine fundamental research with a rules-based framework to build a repeatable, risk-aware portfolio focused on long-term compounding rather than short-term trading. The goal is to be selective and deliberate, while maintaining consistency through market cycles.

At the front end, active research is used to curate an investable universe of high-quality businesses with visible earnings power, durable competitive advantages, disciplined balance sheets, and resilience to disruption. This is paired with an institutional risk framework designed to manage tracking error, limit unintended concentration, and reduce the risk of permanent capital impairment.

Portfolio decisions are reassessed through a disciplined semiannual reset, where the opportunity set is comprehensively reviewed using updated fundamental insights and quantitative signals. This structure allows the portfolio to evolve as leadership shifts across compounders, emerging innovators, and businesses facing disruption. Between resets, ongoing research and risk oversight allow the portfolio to adapt to changing conditions, with off-cycle trades executed selectively when warranted.

Construction is governed by discipline rather than discretion. A modified equal-weight approach helps prevent any single position from dominating risk or returns, while rules-based constraints reduce behavioral bias and concentration risk. By emphasizing active research over frequent trading, the process seeks to control costs and support long-term compounding.

India Select Investment Process

The portfolio of INDZ is built through a disciplined semiannual rebalance designed to separate long-term durable compounders from deteriorating businesses.

Starting from a broad universe of Indian public companies, the process applies sequential screens for liquidity, durability of business models, profitability, and valuation, progressively narrowing the opportunity set.

Securities that exhibit weakening earnings power, declining returns on capital, or elevated forward-looking risk are removed, while high-quality performers and emerging lifecycle winners are retained. The remaining stocks are ranked and optimized within defined risk controls to construct a focused portfolio of 60 to 90 holdings.

This approach is designed for a high-dispersion market, enabling the portfolio to systematically adapt as leadership shifts among durable compounders, emerging innovators, and businesses exposed to disruption, while maintaining consistency in risk management and valuation discipline. The result is a process that remains rules-driven, repeatable, and forward-looking.

Source: VanEck

INDZ’s Core-Satellite Portfolio Construction

The portfolio is constructed using a core-satellite framework that balances stability with innovation. The core sleeve is anchored in large-cap companies with stable, compounding returns and serves as a volatility dampener for the portfolio.

Surrounding this core are satellite positions in mid- and small-cap businesses that represent innovative, scalable lifecycle winners and early-stage disruptors, where return dispersion and mispricing tend to be most pronounced. Position sizes are governed by an adjusted equal-weight approach and minimum liquidity thresholds, while institutional risk controls limit concentration and tracking error.

Together, this structure allows the portfolio to pursue long-term growth across India’s most compelling companies without sacrificing diversification or risk discipline.

Source: VanEck

Ongoing Optimization and Portfolio Risk Controls

Risk management is embedded throughout the lifecycle of the portfolio and implemented using an institutional framework designed to maintain a stable risk profile relative to the benchmark over time. Portfolio exposures are formally reviewed and optimized at each semiannual rebalance, with additional monitoring conducted on a monthly basis to ensure concentrations, factor exposures, and overall risk remain within defined parameters.

Oversight is provided by the VanEck Multi-Asset Solutions group and the Investment Committee, reinforcing discipline and accountability. If the portfolio drifts outside established ranges between rebalances, the portfolio manager will proactively trade to realign exposures and preserve capital.

Sources of Potential Relative Underperformance

The strategy’s disciplined, rules-driven construction is intentionally designed to avoid the behavioral and concentration risks that can arise in discretionary or momentum-driven approaches. Periods of relative underperformance are a natural byproduct of a long-term, selective investment process, and setting clear expectations around these dynamics is essential.

The strategy maintains a structural tilt toward smaller-cap companies, where pricing inefficiencies are more prevalent but volatility can be higher, particularly during periods of market stress. It also carries an intentional growth bias, reflecting a focus on businesses with strong earnings compounding potential, which can lag during periods when value stocks lead.

Finally, strict valuation discipline can limit participation in momentum-driven rallies, especially when highly valued stocks move sharply in the short term. These trade-offs are deliberate and reflect a commitment to long-term capital compounding rather than short-term performance chasing.

To receive more Emerging Markets Equity insights, sign up in our subscription center.