Global X, one of the fastest-growing ETF issuers, continues to build out the emerging markets portion of its lineup. The company announced today the launch of the Global X FTSE Andean 40 ETF (AND), linked to an index that tracks the performance of the 40 largest companies in Chile, Colombia, and Peru.
For many investors seeking exposure to South America, Brazilian stocks are the default choice. Of the 14 ETFs in the Latin America Equities ETFdb Category, half are pure play Brazilian funds and these seven ETFs account for close to 70% of the aggregate assets in the category. Even broad-based Latin American ETFs have a heavy tilt towards Brazil; the iShares S&P Latin America Index Fund (ILF) allocates almost 60% of its assets to Brazilian stocks. Chile makes up about 11% of that fund, with Peru accounting for less than 6%; ILF has no exposure to Colombia [also see Beyond EWZ: Five Alternative Latin America ETF Options].
AND is the first Andean ETF to hit the market, though there are already pure play funds offering exposure to each of the three component economies. Global X also offers a Colombia ETF (GXG), while iShares offers the MSCI Peru Index Fund (EPU) and MSCI Chile Index Fund (ECH).
Though Brazil remains by far the largest South American economy, the BRIC member has been left in the dust by many of its neighbors in recent years. GXG was one of the top performers during 2010, as economic reforms take root and skyrocketing commodity prices gave a big boost to the resource rich economy. Chile and Peru have taken steps to save windfalls during commodity bull markets, and as a result now find themselves on relatively sound fiscal footing–especially compared to many developed markets [see Chile The Forgotten South American Market].
Under The Hood
The new Andean ETF will give the largest weighting to Chile, which accounts for close to half of the fund’s assets. Colombia will account for about 29%, with 22% going to Peru. Not surprisingly, the fund has a tilt towards the materials sector; basic materials companies make up about 28% of assets. The next biggest sector allocations are to financials (21%) and oil & gas (15%). AND also has a healthy allocation to consumer services (13%), making it unique from many emerging markets ETFs.
The largest individual holding in mining giant Southern Copper Corp. (9.3%), followed by Minas Buenaventura (6.8%) and Pacific Rubiales Energy (5.2%).
The underlying index has an impressive track record; the FTSE Andean 40 Index gained more than 51% last year and returned more than 22% annually between 2008 and 2010:
|Index||One Year||Three Year|
|FTSE Andean 40 Index||51.3%||22.1%|
|FTSE Latin America All Cap Index||16.7%||5.8%|
AND marks the fourth new ETF launched by Global X already in 2011, joining the Aluminum ETF (ALUM) and value and growth emerging markets funds (EMVX and EMGX, respectively). The company has several more funds in the works, including an ASEAN ETF and a N-11 fund [see ETFs For The Next 11 Economies].
Disclosure: No positions at time of writing photo is courtesy of Victor San Martin.