Van Eck, the issuer behind several country-specific emerging and frontier market ETFs, announced today the latest addition to its product lineup. The Market Vectors Colombia ETF (COLX) will seek to replicate the Market Vectors Colombia Index, a benchmark that consists of companies either domiciled and primarily listed on an exchange in Colombia or generating at least 50% of their revenues in Colombia. The underlying index includes about 30 securities with market capitalizations ranging from $150 million to more than $80 billion, capturing a significant portion of the publicly-traded Colombian equity market.
COLX will be the second ETF to offer pure play exposure to the Colombian economy, joining a fund from Global X that has been on the market since early 2009. The InterBolsa FTSE Colombia 20 ETF (GXG) is linked to a cap-weighted index that consists of the 20 most liquid stocks in the Colombian market. That fund is tilted towards energy and financial services stocks; those two sectors make up about 60% of total assets.
GXG has become a popular option for investors looking to diversify exposure to a compelling South American growth story beyond Brazil. But the fund took time to gain traction with investors; as recently as June of 2010 GXG had less than $15 million in assets. Around that time the Colombian economy began to expand at an incredible rate, and GXG finished 2010 as one of the top performing equity ETFs [see Best Of 2010: Winners From Every ETFdb Category].
Colombian Economy In Focus
Colombia’s transition from a regulated to free market economy has been a gradual process, with reforms accelerating in recent years and the country finally beginning to enjoy the benefits of sound policy decisions after the recent global downturn hampered those efforts. The last two decades have witnessed reductions in tariffs, additional free trade agreements, financial deregulation, and the privatization of many state-owned entities–all of which have contributed in transforming Colombia from a narco-terrorist state to a rapidly-expanding economy [Invest Like The World's Richest Man With This ETF].
Alvaro Uribe, who was elected president in 2002, is widely credited with reviving the Colombian economy. Uribe implemented “Plan Colombia,” a strategy that called for the weakening of illegal armed groups within the South American country. That initiative has made great progress over the last decade, improving the appeal of Colombia as not only a tourist destination, but an investment destination as well. Colombia already maintains free trade agreements with Canada, El Salvador, Guatemala, Honduras, Switzerland, Norway, and Iceland, and is in the process of improving trade relationships with Asian economies such as Japan.
Colombia has also been engaged in efforts to foster more open trading, including a merger between the Colombian Stock Exchange and Lima Stock Exchange and the creation of a Latin American Integrated Market that includes trading between securities exchanges in Chile, Colombia, Peru.
Colombia is rich in a number of natural resources, including coal, petroleum, natural gas, and precious metals. As such, the incredible rally in commodity prices over the last year has given a nice boost to the economy and allowed the government to build sizable cash reserves. Colombian oil reserves have increased approximately 50% over the last three years thanks to increased exploration, and several large gold discoveries have been made as well. Colombia is also a major exporter of coal, a corner of the energy market that could thrive if aversion to nuclear power spikes in the wake of the recent Japanese crisis [see Nuclear ETF Meltdown: Four Funds Rocked By The Japanese Quake].
Colombia is not without considerable investment risks; a lack of developed infrastructure and high poverty rates stand as both obstacles and opportunities. And while inflation has been held in check recently, the country has battled runaway price increases in the past. Moreover, despite significant improvements in recent decades there remains the potential for corruption and political instability [also read Emerging Market ETFs: Seven Factors Every Investor Should Consider].
Van Eck ETF Lineup
Though the firm as a whole is perhaps best known for its expertise in the hard assets arena, Van Eck has also been active in developing ETFs that offer exposure to emerging and frontier markets that aren’t heavily represented in most investor portfolios. COLX joins a lineup that already includes the only pure play Vietnam ETF (VNM), an Indonesia ETF (IDX), Africa ETF (AFK), Poland ETF (PLND), and Egypt ETF (EGPT).
COLX will charge an expense ratio of 0.75%; GXG charges 0.78%. The average for the Latin America Equities ETFdb Category is 0.67%.
Disclosure: No positions at time of writing.