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iShares To Take On GXG With Colombia ETF

Posted
6/19/2013 1:42:00 PM
By: IndexUniverse
Referenced Stocks:COLX;GXG

iShares, the world's largest ETF provider, on Thursday is rolling out an equity exchange-traded fund focused on Colombian companies, making it the third-and cheapest-ETF targeting the South American country.

The iShares MSCI Colombia Capped ETF (NYSEArca:ICOL), tracking the MSCI All Colombia Capped Index, will invest in some 25 local companies and have an annual expense ratio of 0.61 percent-or $61 per $10,000 invested, according to the fund's prospectus.

ICOL is the third U.S.-listed ETF to focus on Colombian companies, but it's coming to market with the lowest expense ratio in the segment. The four-year-old Global X FTSE Colombia 20 (NYSEArca:GXG) and the two year-old Market Vectors Colombia ETF (NYSEArca:COLX) cost 0.79 percent and 0.75 percent, respectively.

That price difference could be meaningful in the battle for investor assets, though it's worth noting that the $150 million GXG controls nearly 98 percent of all assets in the space despite its having a higher expense ratio, thanks in part to good liquidity that competing Van Eck' COLX doesn't have. COLX has under $3 million in assets.

What's also interesting is that these Colombia-focused ETFs , while similar on the surface, have delivered somewhat different results over time.

Both GXG and COLX are known for their heavy portfolio concentration-where roughly three-quarters of each fund's assets is linked to the top 10 holdings-but GXG has slipped some 6 percent in the past year and is now trading at 18-month lows, while COLX has declined 3.7 percent in the same period, according to IndexUniverse data.

Prioritizing Diversification

iShares is attempting to steer clear of that lack of diversification by imposing a 25 percent cap on single-company exposure. The strategy also stipulates that companies with a weight of more than 5 percent cannot total, in the aggregate, more than 50 percent of overall portfolio.

These measures are intended to provide investors with a more diversified exposure to Colombian equities, even if the portfolio consists of only 25 names. GXG, by comparison, invests in 20 securities, while COLX owns 22.

Energy, financials and utilities will be some of the primary sector allocations in ICOL at launch. In comparison, GXG owns more utilities and consumer cyclicals than COLX, which is heavier in basic materials than GXG with a 16 percent allocation to the sector.

Both funds have financials as their largest sector allocation-between 35 and 40 percent of the portfolio-followed by energy, at roughly a quarter of the mix.


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