The long overlooked Central Asia & Mongolia zone has
recently caught investor's attention. This commodity-centric region
is getting all the attention thanks to an upsurge in natural
All the countries in this region are rich in deposits of various
resources including petroleum, natural gas and mining commodities
like Gold, Copper, Silver and Coal. Mongolia is one of the largest
coal-producing countries, Kazakhstan is one of the major oil
producing countries and Uzbekistan has the largest open-pit gold
mine in the world (read:
3 Forgotten Ways to Play Mining Sector with
When the taper talks began in May, market movement started to turn
around, infusing fresh blood into commodity-oriented ETFs. The
improving China data also helped in lifting these products as the
country is a major user of the said minerals and one of the biggest
importers of those commodities.
, trade between the commodity depot Central Asia and China grew
approximately $500 million in 1992 to $30 billion in 2010
indicating the dependence of this zone on China's recovery.
Following diplomatic developments in Syria, Gold may not be a good
choice to bet on, but commodities like Coal are still offering good
entry points. Moody's
neutral to positive comment
on Coal saying it "does not expect industry fundamentals to
deteriorate further over the next 12 to 18 months, though business
conditions remain very weak" sent coal stocks rallying.
The rating agency also raised its coal industry outlook to stable
from negative (see
Are Coal ETFs Back on Track?
). In such a scenario, one could ride on the commodity strength in
Central Asia & Mongolia.
There is a new fund called
Global X Central Asia & Mongolia Index ETF
which serves up exposure as a pure play in this forgotten region.
The performance of AZIA mirrors that of natural resources and their
With coal stocks heaving a sigh of relief on the expectation of
better pricing by next year, Mongolian exposure, albeit little,
might drive the fund higher. Kazakhstan's abundance of coal should
also be kept in mind.
Central Asia & Mongolia is a bit tricky part of the world to
invest in since very few and not all five counties of central Asia
(Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan)
get exposure in the emerging markets or frontier market funds. This
criterion brings AZIA in focus. In the last three months, the fund
gained 8.5% as of September 30, 2013.
AZIA in Details
Debuted in April 2013,
Global X Central Asia & Mongolia Index ETF
(AZIA) tracks the performance of the Central Asia & Mongolia
Index. The fund doles out exposure to 22 securities from the
various nations that have exposure to the central Asia and Mongolia
So far, the fund has been ignored in the emerging markets segment
with just about $1.5 million in AUM. This leaves the fund with
paltry trading volumes. Its daily trading volume of around 3,000 is
also quite light compared to better known emerging market ETFs like
The product puts as much as 74.0% of its total assets in the top 10
holdings, suggesting a very high concentration risk. Centerra Gold
Inc. (12.04%), KAZAKHMYS (9.58%) and Bank of Georgia (9.47%) hold
the top three positions in the basket (see
all the Asia Pacific Emerging Market ETFs
In terms of geographic exposure, the United Kingdom (41%), Canada
(19%), and Kazakhstan (13%) round out the top three as well as take
up the lion's share of the fund's assets. Greater exposure to the
better-positioned United Kingdom in Europe also explains why it can
be a prudent bet in sluggish global recovery.
Further, almost exclusive focus on blend style also calls for lower
volatility in the fund. The choice is moderately expensive in the
space, as it charges 69 basis points a year in fees which is a bit
higher than the average expense ratio in the emerging market space,
though definitely lower than some of the high cost picks out there.
If mining rally holds up, in our opinion, investors can try
investing in AZIA since the fund is new and offers lucrative
valuation at the current level. Although the recent jobless claim
data in the U.S. and the unanticipated "Zero Taper" will likely
reverse investor attention again towards the stock market, the
Fed's cut in GDP outlook implies that the picture is not as rosy as
perceived by the most (read
3 ETF Winners from the 'No Taper' Shocker
This sentiment may provide a boost to commodity outlook though,
making natural resource picks interesting ones for the time being.
Also, we expect AZIA to remain stable as long as China keeps
staging a nice show, so this forgotten ETF might be worth a closer
look by some investors who have a high risk tolerance.
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GLBL-X CTL A&M (AZIA): ETF Research Reports
ISHARS-EMG MKT (EEM): ETF Research Reports
ISHRS-MSCI F100 (FM): ETF Research Reports
GUGG-FRONTR MKT (FRN): ETF Research Reports
VANGD-FTSE EM (VWO): ETF Research Reports
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