iShares, the largest ETF issuer in the world, already has a pretty diverse lineup of funds. The company has products targeting a variety of asset classes, including domestic stocks, bonds, and commodities.
The firm has an especially large lead in the foreign ETF market, thanks to its numerous country-specific funds. In particular, iShares’ dominance is impressive in the Latin American segment, thanks to a number of ultra-popular ETFs.
These include EWZ for Brazil, and EWW for Mexico, two products that are both more than decade old, and have more than $1 billion in AUM each. The company has also branched off into other, smaller nations in the region, such as Peru (EPU), and Chile (ECH), rounding out their Latin American offering (see 4 Best ETF Strategies for 2013).
Now though, it appears as if iShares is once again expanding its Latin America ETF lineup, with a brand new fund targeting Colombia; the MSCI Colombia Capped ETF (ICOL - ETF report). This product brings iShares’ offering in the region up to eight funds, while also helping to provide some competition in a quickly growing market as well.
ICOL in Focus
The new ETF looks to follow the MSCI All Colombia Capped Index in order to capture the performance of the large, mid, and small cap segments of the broad Colombian market. In order to be included in this benchmark, securities must be either based in the nation, or need to have a majority of their operations in Colombia (read Time to Buy This Top Ranked ETF?).
Investors should also note that the ‘capped’ focus of the index looks to avoid excessive concentration, preventing a single firm from making up more than 25% of the benchmark. Additionally, stocks that have weights above 5% in aggregate cannot make up more than half of the portfolio.
Still, even with this cap, the index looks to have a bit of concentration with Ecopetrol taking up over 17.5%, and Pacific Rubiales Energy occupying another 9.6% as well. Financials then dominate much of the rest of the top holdings, giving the portfolio a tilt towards energy and financials which each account for one-third of the assets, followed by utilities (15%).
In total, two dozen companies find their way into the product, suggesting that it isn’t the deepest national market out there. That is probably also why expenses are somewhat elevated, coming in at 61 basis points a year.
A reason for this launch is probably due to the rise of Colombia as an investing hotspot. The country has managed to get drugs and security issues somewhat under control, while the economy has also been booming as well (see Latin America ETFs: Beyond Brazil).
The nation is a big commodity producer of key products like oil, while it also has decent sized operations in the industrial metal market, not to mention its famous coffee as well. Thanks to a recent commodity boom and a better security atmosphere, the nation is now growing more than 4% a year on the GDP front, while debt-to-GDP remains at a low level.
For these reasons, the Colombian market has really taken off lately, providing long term investors with solid gains. The country is now rivaling others in the region as an investment destination, and thus could be a good pick for some emerging market investors who have a high risk tolerance.
Unfortunately for iShares though, a couple other ETF providers have already caught on to the Colombian growth story and have launched funds of their own in the space. This includes the Market Vectors Colombia ETF and the older Global X FTSE Colombia 20 ETF (GXG - ETF report).
Despite a strong level of performance (130% gain since inception for GXG), the two haven’t really seen big inflows. In fact, the total invested between the two is below $150 million, with the vast majority going to GXG (read Colombia ETFs: Head-to-Head).
Given this low level of interest so far in what was until the recent emerging market slump a great story, it is hard to say how ICOL will perform. iShares does have a pretty good track record in countries, even when it isn’t the first mover (see Indonesia).
So the company could have a modest winner on its hands in Colombia, assuming that the bottom doesn’t fall out for emerging markets in the aftermath of tapering talk and a strong dollar. Still, investors seem to be somewhat skittish about Colombia ETF investing—possibly due to its concentration issues—so this new iShares fund is by no means a sure thing in terms of asset accumulation.
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