Making long-term investment decisions requires a macro examination of the market you are investing in.
For years, I have loved the demographic outlook for India.
According to the World Bank, the average age in India is 28, compared to 37 for China, 38 for the United States, 39 for Canada and 48 for Japan.
At the macro level, economic growth is defined by aggregate demand - the amount being spent by consumers, business, and government - which is heavily influenced by the age of a population.
Japan is the oldest nation in the world and will have economic difficulties for generations.
China is where Japan was 20 years ago and is about to embark on decades of stagnation. Their one-child policy has led to a population that is 53-per-cent male and 47-per-cent female. Their population is expected to peak in the next five years and then begin to shrink, like Japan's has, for several years now.
When the developed world was 10 years younger on average 40 to 60 years ago, the economic boom was powerful. In the developed world, we are simply not going back to those days for generations, the demographics make it virtually impossible and infrastructure spending (fixing decaying assets) will simply not get the same bang for the buck that it did when the bridge or road was first built.
But in India, they have fantastic growth potential.
The infrastructure needed is where developed countries were 50 years ago. The fertility rate, according to the World Bank, is about 2.5, which is materially higher than 1.8-range of the developed world.
I was the keynote speaker at a conference held at the Bombay Stock Exchange in 2012. I toured around Mumbai for four days.
The potential for economic growth is staggering for decades to come.
The biggest challenge with India is that they often run twin deficits. On trade and investment, they tend to import more than they export, which means money in constantly leaving the country.
The Indian Rupee has lost about 5 per cent per year for the past 30 years.
For foreign investors, that's a big risk. Hedging is not an option as the cost of the hedge is typically the difference in short-term interest rates, which is about 5 per cent.
There have been periods of a decade or more when the currency was stable. We have not seen signs of a stable currency yet, but we expect one over the coming years.
The market (ETFs) have declined about 10 per cent in recent months, and it's beginning to look attractive again relative to other emerging markets.
Other countries with far less attractive demographics have too much exposure to commodities, like Russia and Brazil, that make risk-adjusted returns much less attractive.
For the long-term investors, India is one of those buy-and-hold long-term plays. Keep in mind, India is about 1 per cent of the world market (Canada is about 3.3 per cent), so a very bullish position would be about 5 per cent.
I hold about 2.5 per cent in the BMO Tactical Global Growth ETF Fund I manage.
I hold the INDA (iShares MSCI India ETF) and SCIF (VanEck India small-cap ETF) for large and small cap exposure. If you do not want exposure to the U.S. dollar, then the BMO India ETF (ZID) would be a similar holding though somewhat less diversified than how I'm playing it.
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Larry Berman