Thanks to ongoing crises in Europe, investors are finally
shifting their focus from the crisis-ridden developed economies
to the emerging Latin American countries. One such country which
is drawing investor attention is Colombia - the fourth largest
economy in Latin America (read:
Broad Latin America ETF Investing 101
The Colombian economy has nicely held up over the last several
years thanks to improved security conditions, political stability
and a record level of foreign investment into its oil and coal
sectors. The uptick is expected to continue this year as
According to the International Monetary Fund (IMF), Colombia
is expected to grow 4.4% in 2013, well ahead of many other
nations in the region. Positive demographics with a population of
nearly 47 million, strong macroeconomic policy framework and a
flexible exchange rate regime will fuel further growth in the
Growing consumer demand in the country had resulted in a rise
in inflation to well above the midpoint of the central bank's
target range (though among the lowest in the region), leading to
rate hikes in 2011 and 2012. However, the inflationary pressures
have now started easing and inflation currently stands at 2%.
The country's key exports of oil, coffee and coal industrial
production have suffered of late due to global slowdown and
strong appreciation of the currency. With both the government and
central bank purchasing dollars to limit the currency
appreciation, the Colombian peso now seems to have stabilized to
some extent (read:
Best Latin America ETFs for 2013 (Part II):
In spite of all the progress, unemployment rate of about 10%
is the major concern for the nation's growth. Though the rate has
fallen from nearly 15% about a decade ago, it is still among the
highest in the region.
Beyond this, poor infrastructure, income inequality and
drug-related violence remain the main challenges for the country.
Further, the economy is highly dependent on the performance of
the volatile oil and mining sectors.
Notwithstanding somewhat high levels of uncertainty, Colombia
still holds the "investment grade" rating from all the three top
agencies owing to its improved investment environment. The future
economic and business prospects in Colombia seem promising on the
back of worldwide efforts by both its government and central bank
4 Best ETF Strategies for 2013
Having said that, a look at the top ranked Colombian ETF could
be a great way for investors to tap this emerging Latin American
market. One way to find a top ranked ETF in this space is by
using the Zacks ETF Ranking system.
About the Zacks ETF Rank
This technique provides a recommendation for the ETF in the
context of our outlook of the underlying industry, sector, style
box or asset class. Our proprietary methodology also takes into
account the risk preferences of investors.
The aim of our model is to select the best
within each risk category. We assign each ETF one of the five
ranks within each risk bucket. Thus, the Zacks Rank reflects the
expected return of an ETF relative to other ETFs with a similar
level of risk (see more ETFs in the
For investors seeking to apply this methodology to their
portfolio in the Colombian market, we have taken a closer look at
the top ranked GXG, which has a Zacks ETF Rank of #1 or 'Strong
Buy' which suggests that it will outperform its peers over the
coming one-year period. The details of this impressive emerging
market ETF are highlighted below:
Global X FTSE Colombia 20 ETF (
Launched in February 2009, this fund seeks to replicate the
price and yield of the FTSE Colombia 20 Index, before fees and
expenses. The product holds the most liquid 23 Colombian
securities in the basket and provides a nice mixture of all cap
securities with large cap (49%), mid cap (32%) and small cap
(19%) sharing the space.
The fund concentrates on individual securities and sectors. It
puts nearly 67% of the assets in the top 10 holdings, suggesting
that the return of this emerging market ETF is largely dependent
on the returns of the top 10 companies. Ecopetrol, BanColombia
and Pacific Rubiales Energy take the top three positions that
make up for a combined 33% share in the basket.
From a sector perspective, financials comprise roughly
two-fifths of the total assets while energy companies make up
another fifth (read:
What is Driving Bank ETFs Higher?
). Though the fund has heavy sector concentration, this has
clearly paid off in the past.
The product has managed assets of over $200 million so far and
has seen fund inflows of roughly $22.3 million this year. This
suggests that bid ask spreads are relatively tight and that total
costs will not come in much higher than the 78 bps expense ratio.
Further, it is less volatile as indicated by its annualized
standard deviation of 15.51%.
The fund has a tilt towards the blend securities, ensuring
broad diversification in terms of style (read:
The Best Investing Style ETF This Fiscal?
). It remains one of the top performers in Latin America, having
returned over 27% last year, while yielding more than 2% in
So for investors seeking an emerging market play off of the
beaten path, GXG could be an interesting choice. The fund is
tracking a country that is poised to surge higher again this
year, thanks to solid demographics and a robust GDP growth
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MKT VEC-COLUMB (COLX): ETF Research Reports
GLBL-X/F COL 20 (GXG): ETF Research Reports
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