McCall’s Call: Investing In Andean Region

February 09, 2011

The time for investing in the Andean region in a single security has arrived.

 

Last week, the first-ever ETF to track the Andean region of South America including Chile, Colombia and Peru was launched by Global X Funds, and it immediately caught my attention.

Matthew D. McCallIt’s hardly news that the days of political instability are history in Chile and have been replaced by tales of a thriving economy, growing companies and a liquid stock market. That said, while the replacement of violence and civil war with “investability” in Colombia and Peru is not entirely new, it’s still fresh enough that it may need some getting used to.

So let me help you get your head around what’s at stake here. The Global X FTSE Andean 40 ETF (NYSEArca: AND) tracks the FTSE Andean 40 Index, which is composed of the 40 largest companies in Chile, Colombia and Peru. The total expense ratio for the ETF is 0.72 percent.

What’s new here is putting the three pieces of the Andean puzzle into one security. The three countries already have single-country ETFs that give investors access, and each returned at least 45 percent last year.

I’ll talk about those three ETFs, including one also sponsored by Global X, that canvasses Colombia. But as far as the country breakdown for the new Global X Andean ETF, “AND,” goes: Chile makes up 49 percent; Colombia, 29 percent; and Peru, 22 percent. The new fund is heavily weighted toward basic materials and financials, with the two sectors making up 50 percent.

Of the 40 stocks in the fund, the top 10 holdings make up 52 percent. The top holding is a well-known copper company based in Peru, Southern Copper (NYSE: SCCO) at 9 percent, followed by Minas Buenaventura (NYSE: BVN), a Peruvian mining company with 7 percent of the allocation.

Chile

Chile’s economy, the fifth-largest in South America, has been strong and is expected to get even stronger. The Chilean government anticipated growth of 5.1 percent in 2010, and is forecasting even more robust growth this year—of 6.1 percent—helped by strong domestic demand.

Chile also benefits from rising demand for copper. The metal is the country’s largest export by value and its price recently reached a record high.

The iShares MSCI Chile Investable Market ETF (NYSEArca: ECH) is composed of 35 Chilean stocks with a strong emphasis on utilities, industrials and materials. The ETF returned investors 45 percent in 2010 and charges an expense ratio of 0.61 percent.

As of Dec. 31, the stocks in the ETF traded with a fairly high P/E ratio of 26.6, and the first five weeks of 2011 have not been kind to ECH, as it has fallen over 11 percent. Part of that is fallout related to unrest in Egypt in other emerging markets.

 

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