A New Way To Invest in Chile

Chile has been one of my favorite investment destinations for a long time.

From the top down, the country has several things going for it. It is a commodity-based economy well known for its copper exports, strong GDP growth and a public pension system that provides ongoing demand for stocks. Moreover, only 15% of Chile's exports go to the U.S., so it has small exposure to a U.S. downturn.

There is a limited number of ways to make a concentrated bet on this market. Two years ago, I wrote about the (CH)Chile Fund (CH), which is a closed-end fund. There are a few ADRs available, too. Finally, this month there is an ETF from Barclays, the iShares MSCI Chile Index Fund(ECH).

I should note that inflation has been heating up lately, causing Chile's central bank to raise rates several times, contributing to the peso's appreciation against the U.S. dollar. That means the ETF's returns will look that much better when translated back into greenbacks.

Often, single-country products have a large representation of financial stocks. iShares MSCI Brazil(EWZ) has 16%, for example, but ECH has only 8.77% in the sector. I think that if you are going to buy a country best known for natural resources, it's better that the fund be heavy in those sectors and not banks.

ECH's heaviest concentrations are in utilities, at 25.25%, followed by industrials, at 22.37%, and materials, at 18.09%.

Single-country funds generally capture whatever happens in the local stock market, and I have no doubt that ECH will do the same.