iShares surprised the market on Monday with the launch of the first US listed Peru ETF. Global-X investments - the niche firm who listed the US's first Columbia offering - was expected to be first to market.
The iShares MSCI All Peru Capped Index Fund (NYSEARCA:EPU) will allow US investors to easily access one of Latin America's hottest markets by tracking a pure free float market cap weighted index. Its 25 names are heavily concentrated in the materials sector (65%), with a particular focus on gold, silver, and copper. Its largest holding at 19% Cia De Minas Buenaventur (NYSE:BVN) who produced nearly half a million ounces of gold last year (compared to Goldcorp's 2.4), and its second largest at 15% is Southern Copper (PCU), the biggest player in the world's fourth largest copper producing nation.
The fund also holds an 11% weighting in Credicorp (NYSE:BAP) - Peru's largest financial firm with operations in commercial banking, insurance, and investment banking - whose shares have held up well during the crisis, and several smaller miners with operations in lead, zinc, and iron.
The EPU carries heavy concentration risk both sectorally in metals and mining, and in the large weighting given to individual equities. It can, however, be a very useful tool to play rising commodity prices and an emerging market recovery.
Its .63 expense ratio is reasonable, however the fund has one quirk in its operations. It is only required to be 80% invested, rather than the more usual 95%. This is done so that the fund can track its index cheaply through a mixture of sampling and derivative products. But it adds to the risk of tracking error, and that remaining 20% is poorly disclosed.
The EPU looks like a winner, but it should be interesting to see if Global-X can improve upon this product by offering a more diverse or more invested index.