Colombia, infamous for drug trafficking and violence, is presenting new investment opportunities through an exchange-traded fund that's making it easier to access its fledgling stock market.
Global X /InterBolsa FTSE Colombia 20 ETF
, which began trading in December, is the first fund from New York-based Global X Management Co. The company plans to introduce funds that invest in Egyptian and Peruvian stocks next.
Cocaine trading and political instability in Colombia have made headlines for decades, particularly during the murderous reign of Medellin cartel leader Pablo Escobar. But in recent years, Colombia's economy has benefited from the rise of free-trade attitudes under President Alvaro Uribe. As a result, the country's economy grew 3.1% during the first nine months of last year as the U.S. economy shrank.
Resource-rich Colombia exports oil, coffee, coal and nickel. It's home to 44 million people, and the U.S. is its biggest customer, accounting for 35% of exports. Colombia's inflation is 7.18%, higher than the 5% target of its central bank.
Data shows that stocks in emerging markets often rise when U.S. equities fall. Last year, Colombian stocks followed the trajectory of the S&P 500, but evidence suggests they might be headed in opposite directions.
The Global X ETF holds 20 stocks, reflecting Colombia's few publicly traded companies and low liquidity. Holdings in oil company
account for 40% of the fund's assets, an unusually high concentration for an ETF.
GXG allots half its assets to financial companies, and energy and materials stocks make up a third. Less than 2% of the fund is invested in telecommunications.
Global X charges investors 0.86% for GXG, whose 15.57 price-to-earnings ratio makes it more expensive than other emerging markets funds. And while dividend information isn't available, the fund's yields could be high if
generate dividends that top 5.8% and 4.7%, respectively.
The country's stocks may be poised to rise as U.S. equities sink, but investors should expect wide price swings, as evidenced in June 2006, when emerging markets stocks plunged after climbing for more than a year. GXG could also lose value if commodity prices take another step down.
Still, the country could be compelling if it remains politically stable. Its pro-trade government is eager to export the country's highly sought natural resources. If successful, more of its residents, 46% of whom are living below the poverty line, would move into the middle class, creating more opportunities.
At the time of publication, Nusbaum had no positions in the securities mentioned, although positions may change at any time.
Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback;
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