iShares, Global X ETFs Offer Andean Entry

NEW YORK (TheStreet) -- Barron's ran a feature article over the weekend about the merits of investing in financial stocks from the Andean countries of Peru, Chile and Colombia. This was of great interest to me as I have been writing about investing in Chile for many years, added Colombian exposure for clients at the start of the year (albeit in a different sector) and said in an appearance on CNBC in June that Peru was a buy despite the presidential election victory by Ollanta Humala, who is perceived to be unfriendly to business.

The short version of the story is that these countries have stuff (mostly resources in the ground) that the rest of the world needs. These resources are creating newfound prosperity and a tailwind for the equities of these countries, including financials. The article mentions Santander de Chile ( SAN), Bancolombia ( CIB) and Creditcorp ( BAP) from Peru. Readers will be aware of a similar story with Brazil but the Andean countries are, to use a baseball analogy, in the earlier innings of this effect.

iShares and Global X have the ETF route into this theme very well covered for investors preferring to avoid single stock risk for this segment of the global market.

The iShares MSCI Chile Investable Market Index Fund ( ECH) allocates a surprising 24% to utilities followed by 19% in industrials and 18% in materials. Financials come in at 12%. The largest individual components include Empresas Copec which is an energy and natural resource conglomerate, retailer Cencosud and Empresa Nacional de Electricidad ( EOC) which is an electric utility company.

Many Chilean companies pay generous dividends, but that has yet to be captured by the ETF. The yield for the last 12 months has only been 1.5%. SAN and EOC each have trailing yields of 4.3%.

The Global X FTSE Colombia 20 ETF ( GXG) is one of the most successfully timed ETF launches ever. In its first year it had an amazingly consistent ride to a 103% gain. As implied by the name of the fund there are only 20 holdings which makes it relatively concentrated. Financials are the largest sector by far at 41% followed by oil and gas at 17% and industrials at 10%. The aforementioned Bancolombia is the largest holding at 13% followed by oil giant Ecopetrol ( EC) at 12%.

GXG has paid two dividends since it listed payout $0.53 in December 2009 followed by $0.13 a year later. This reinforces a point I make often about ETF dividends being very lumpy.

iShares MSCI All Peru Capped Index Fund ( EPU) is a similarly concentrated portfolio as miner Cia de Minas Buenaventura ( BVN) comprises 20% of the fund followed by Creditcorp at 14% and Southern Copper ( SCCO) at just under 12%. Materials account for 60% of the fund and financials weigh in at 19%.

The last choice here is the Global X FTSE Andean 40 ETF ( AND) which of course offers exposure to the region without having to choose an individual country. This fund allocates 51% to Chile, 33% to Colombia and 16% to Peru. Materials and financials are the largest sectors with each being close to 25%. The largest individual holdings are all the names mentioned throughout this article.

A bigger picture reason to consider these countries in conjunction with the natural resources leading to a viable middle-class theme is that during the last decade as the S&P 500 declined 24% on a price basis the equity markets in these countries carried on without us; Chile up 194%, Peru up 680% and Colombia had almost a six-fold increase. Those returns all came via very bumpy rides and, even if not repeatable, show that these markets can thrive as the U.S. flounders.

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At the time of publication, Nusbaum was long SAN, ECH and EC, 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; click here to send him an email.

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