Competition Tightens For 2 Colombia ETFs

July 17, 2014

Investors have fewer—but better—choices.

While skirmishes in the ETF fee wars are common, the following one caught my eye.

The Global X MSCI Colombia ETF (GXG | C-43) lowered its fee to 61 basis points—or $61 for each $10,000 invested—from 68 basis points, to match the annual expense ratio on the iShares MSCI Colombia Capped ETF (ICOL | F-60). GXG’s fee reduction stood out because it was paired with an interesting switch in its underlying index.

With most ETFs—and index mutual funds for that matter—it’s the index that governs what the fund holds and how it performs, so index changes do matter.

What’s interesting here is that Global X’s GXG changed from its old FTSE index to the very same MSCI index tracked by—you guessed it—iShares’ Colombia fund, ICOL.

Why would a fund from a smaller issuer like Global X directly challenge a fund from a giant issuer like iShares with the same index for the same price?

Simple. GXG—the first mover in the space, with five years of history—dominates in assets and liquidity, and wants to continue doing so. In contrast, ICOL is fairly new, with just 13 months of history. The iShares ETF also lacks the assets under management and trading volume of its established rival.

To nip the upstart competition in the bud, GXG is adopting ICOL’s exact coverage going forward, and matching its fee. Investors comparing the two funds will find identical coverage and fees, and are left with assets and average daily trading volume as points of distinction. Those points play to GXG’s strengths.

For investors, GXG’s bare knuckle tactics produce a net benefit in my view.

True, investors now have one less choice with respect to Colombia-focused ETF coverage. Still, our analytics Fit score—using ICOL as a proxy—says that GXG’s new MSCI index delivers more marketlike coverage than its old FTSE index.

In short, the best overall choice for the space, allowing for size and liquidity, just got cheaper and more representative of the market.


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