Two ETFs To Play Colombia’s Appeal (GXG, FRN, EC)
As commodity prices continue to increase and the US dollar remains weak, commodity rich frontier markets, in particularly Colombia, may pose an opportunity to investors.
One of the primary drivers behind Colombia’s’ appeal is its vast supply of natural resources. The nation is rich in oil, coal and other minerals, all commodities that are likely to witness elevated demand from both developing and developed nations as the global economy mends and economies grow. Furthermore, the Colombian government has implemented a series of policies such as the Andean Trade Promotion which is encouraging a more diversified export base other than the United States and Venezuela, its two largest trading partners. Additionally, Colombia is pursuing free trade agreements with Asian and other South America nations, which are two regions that are expected to witness increased appetites for natural resources, in particularly oil and coal.
A second reason to watch Colombia is its improving political stability. This increase in political stability has led to a dramatic decline in violence. In fact, the number of murders in the last year dropped by more than half and the number of kidnappings declined by more than 90 percent from the prior year. As a result of decreased violence, Colombia’s economy has been opened up to international investment and has increased domestic consumer spending. In fact, according to Bloomberg.com, Colombian foreign direct investment more than quadrupled in the past decade, to $7.2 billion in 2009 from $1.5 billion in 1999. Furthermore, Colombia attracted about $6.5 billion in foreign direct investment through the third quarter of 2010 and foreign direct investment in mining rose to $3 billion in 2009, the last year of annual figures available, from $1.8 billion in 2008, according to central bank figures.3
Lastly, it appears that Colombia has inflationary concerns relatively tame. According to the latest data from the CIA’s World Fact Book, inflation in 2010 was roughly 2.6 percent, despite elevated food prices throughout the world.
In a nutshell, an opportunity appears to exist in Latin America’s third most populous nation and two ways to play this are through:
- Global X/InterBolsa FTSE Colombia 20 ETF (NYSE:GXG), which allocates nearly 34% of its assets to the oil & gas industry.
- Guggenheim Frontier Markets (NYSE:FRN), which allocates nearly 13 percent of its assest to Colombia and boasts Colombian-based Ecopetrol S.A. ADR (NYSE:EC) as its top holding.
Written By Kevin Grewal From ETF Tutor Disclosure: No Positions
Kevin Grewal is the founder, editor and publisher of ETF Tutor and serves as the editor at www.SmartStops.net, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was a quantitative analyst at a small hedge fund where he constructed portfoliosdealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor’s degree from the University of California along with a MBA from the California State University, Fullerton. He is a contributing author on The Street – his articles can also be found published on various sites including Yahoo! Finance, The Globe and Mail , Daily Markets, MSN Money, Seeking Alpha, Fidelity Investments, Traders Library, and Minyanville.