Invest Like The World’s Richest Man With This South American ETF

by on February 11, 2011 | ETFs Mentioned:

Although the global economy is still weak and emerging markets have been under significant pressure as of late, some have continued to pour in fresh cash, seeking to find beaten down companies in these still quickly growing countries. One person that has been doing just that, albeit with a ton of cash, is Carlos Slim, the world’s richest man. Although Slim has made the vast majority of his money from his total dominance of the Mexican telecommunication market as well as a variety of other industries, he has begun to look beyond Mexico for other investment opportunities, turning his attention further south in Latin America. One particular market that has attracted Carlos Slim in recent years is the increasingly dynamic market of Colombia which has quickly managed to turn around its economy from a drug haven to a commodity powerhouse with the potential for advancement in a number of other industries as well. However, it is the oil industry that has particularly interested Slim, given the country’s relatively open policy on oil exploration along with the stronger investment climate than nearby oil titan Venezuela.“The government is actively looking at the development of the oil industry and is promoting other investments,” said the Mexican tycoon, suggesting that Colombia is pushing for increased investment in the sector in order to help fuel its continued growth [also read Emerging Market ETF Investing: Beyond The BRIC].

Additional investment in the nation will be not be difficult to attract given the impressive gains that the country has made in recent years. FDI in Colombia more than quadrupled over the past decade as murders in the country fell by more than half and kidnappings plummeted by over 90% suggesting that the country has managed to subdue the rebel groups and consolidate its power over the nation, allowing businesses and citizens to flourish in a much safer environment [also read Emerging Market ETFs: Seven Factors Every Investor Must Consider].

Given the impressive performance of the country, many might be considered that the chance to extract gains from Colombia may be nearing an end but Carlos Slim believes that this is not true. Slim declares that this investment opportunity is just beginning thanks to surging economies in major markets such as China and India as well as continued concern over the U.S. dollar which many foreign governments are seeking to limit their exposure to as much as possible. As a result, commodity prices are likely to stay elevated in the long-term especially if emerging nations continue their torrid pace of growth and buy up vital commodities instead of American debt. “They don’t want to have Treasuries,” Slim said. “The dollar is weak and there’s no interest, and also with commodities they have reserves for internal consumption.”

While buying up Colombian companies like Slim is obviously impractical or downright impossible for many individual investors or RIAs, there are a number of ways to gain exposure to the economy via ETFs. Although seven ETFs offer exposure to the nation, arguably one of the best ways to play the Colombian stock market is with the Global X/InterBolsa FTSE Colombia 20 ETF (GXG).  The fund tracks the FTSE Colombia 20 Index which is a market capitalization-weighted index of the 20 most liquid stocks in the Colombian market. The index is designed to measure broad based equity market performance in Colombia. Currently, the fund consists of heavy exposure to oil & gas firms (34.3%), banks (21.1%), and financial services (15%) while offering little or no exposure to technology and consumer companies. In terms of individual holdings, two energy companies, Pacific Rubiales Energy and Ecopetrol combine to make up more than one-third of the fund’s total assets while BanColombia, the nation’s largest bank is not far behind with roughly 15% of GXG’s total assets [See Global X Launches Andean ETF].

Unfortunately for recent investors, GXG has, much like other emerging market ETFs, has suffered in 2011 posting a loss of 7.8% over the past month and a 15% loss over the past quarter. However, a longer time frame shows just how impressive the fund’s performance has been. Since its inception just over two years ago, GXG, has had an incredible run, posting annualized returns in excess of 75%. Clearly, Carlos Slim and others may be on to something with their investments in this rapidly growing and increasingly attractive destination for capital in Latin America, especially if commodity prices remain firm over the long-term [also read The Colombia ETF's Secret Sauce].

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Disclosure: No positions at time of writing.