Is it Time to Warm Up to the Chile Fund?

May.10.07 | About: Aberdeen Chile (CH)

There are a number of single-country ETFs for Latin America, including the iShares MSCI Brazil Index (NYSEARCA:EWZ) and the iShares MSCI Mexico Index (NYSEARCA:EWW). There's also the region-wide iShares Latin America 40 Index (NYSEARCA:ILF). For the time being, however, one may be harder-pressed to capitalize on new developments in Chile.

Recently, Chilean experts as well as government officials raised their expectations for the country's economic growth from 5.3% to 5.7%. The Chilean economy grew at 4% in 2006.

Alongside a fast-growing economy, however, has been the threat of inflation... at 2.8% and warming. The central bank is expected to raise interest rates from 5% to 5.25% to curb the threat.

Rapidly growing economy? A central bank willing to raise interest rates by a quarter point at a time? It's hard to discount the similarities to the U.S. markets just 12 months earlier.

Of course, the U.S. markets have been gaining ground quite nicely under similar circumstances... thank you very much. And Chile has other positive features, including its status as a major exporter of copper.

Intrigued? I am. Yet in the absence of an exchange-traded fund alternative, one can only look to Credit Suisse's closed-end Chile Fund Inc. (NYSEMKT:CH).

The Chile Fund (CH) has a wide variety of advantages and disadvantages. On the plus side, CH is reasonably well-diversified across economic segments from utilities to industrials to natural resources. Today, CH also boasts a 5% discount to the net asset value of the fund holdings -- its biggest discount in more than a year. Moreover, the fund has remained above its 200-day moving average since November, 2006. It has also posted annualized gains of 28%+ for 5 years and 10%+ for 10 years.

For every positive, however, there are a fair number of dings in this vehicle. An investor is looking at an investment in CH that is twice as volatile as the S&P 500. The management fee for CH is a lofty 2.14%. (Give us an ETF with 0.5% please!) And the broader regional alternative, the iShares Latin America 40 Index (ILF), has more than doubled CH over the last two years.

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Disclosure statement: Some of Pacific Park’s investment clients may hold positions in any of the investments mentioned above.