Van Eck, the New York City-based issuer known for its hard assets expertise and emerging markets products, continues to be active on the product development front. The company recently filed details with the SEC for a new ETF focused on South America; the proposed fund will track the Market Vectors Colombia Index, giving investors exposure to one of the hottest economies in South America.
This proposed Colombia fund’s benchmark consists of companies that are domiciled and primarily listed on an exchange in Colombia, as well as firms that generate at least 50% of their revenues in the country. As such, companies that do a significant portion of their business in Colombia, but happen to be domiciled or listed in neighboring Peru or Brazil, are still eligible for inclusion, resulting in a wider array of securities available for selection in the index.
Constituent stocks of the fund’s index must have a market capitalization of greater than $150 million on the rebalancing date to be added to the index. Stocks whose market capitalizations fall below $75 million as of any rebalancing date will be deleted from the Index. Stocks must also have a three-month average daily turnover greater than $1 million to be included, and issuers of such stocks must have traded at least 250,000 shares each month over the last six months.
Currently, 29 securities meet these stipulations with a market capitalization range from between approximately $150 million and $84 billion and an average market capitalization of $6.6 billion. This suggests that the fund will have a mid and small cap tilt, although mega caps will clearly be represented as well.
The Colombian market has been red hot lately and has attracted a great deal of interest from American investors. And many investors have embraced an existing ETF to achieve exposure to Colombia; one of the very first products from Global X was the Interbolsa FTSE Colombia 20 ETF (GXG), which tracks the FTSE Colombia 20 Index. That benchmark is a market capitalization-weighted index of the 20 most liquid stocks in the Colombian market, maintaining the highest sector allocations to the oil & gas segment (34%), as well as banking (21%) and financial services sectors (15%).
GXG has been around since February 2009, and was initially slow to attract assets from investors. As recently as June of 2010, the fund had failed to cross the $15 million threshold. But around that time the Colombian economy began to expand at an incredible pace, and investors looking to diversify Latin America exposure beyond Brazil zeroed in on GXG as an attractive option. The Colombia ETF gained a whopping 52% in 2010, and the fund finished the year with $170 million in assets.
Van Eck and Global X go head-to-head in other corners of the market as well; both offer ETFs focusing on stocks of companies involved in gold exploration, and both are more broadly active in offering funds that invest in stocks of commodity producers.
Van Eck’s proposed Colombia ETF would charge an expense ratio of 75 basis points, below the 86 basis points charged by GXG. Increased competition and a growing lineup of ETFs have sparked price wars in the industry. Vanguard, Schwab, and iShares have all cut expenses on multiple ETFs over the last several months, while Van Eck has also reduced fees on some of its emerging markets ETFs. Cash flow figures suggest that investors are embracing low cost ETF options – with some notable exceptions.
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