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  • Getting Exposure To Colombian Funds 0 comments
    Dec 17, 2012 5:54 AM

    Apart from emerging as one of the biggest oil exporters in the world, the equity markets of this Andean nation have defied global down trends on almost every occasion throughout 2012 and a few years prior to that too.

    Full credit should go to the policy makers for creating favourable and secure environ for the businesses and industries in the country. Colombia enjoys an ``Investment Grade Status`` from three Wall Street rating agencies including Fitch and has free trade agreements with USA, China and the Euro zone. Certainly, not bad for a nation which was struggling with drug terrorism only till a decade ago and was rather infamous due to the likes of the Pablo Escobar.

    Colombia of today is a far cry from the drug infested lands of yore; rather it is a country where the Government is in control of things and has only one agenda which is development. The state has plans to harvest additional 6 million hectares land for the cash crop cultivation and has announced that the recent FTA with America will result into 1 % rise in the economical growth and creation of 3,00,000 new jobs for the citizens of the country.

    Where is the money coming from?

    Almost three quarters of foreign investment is consolidated in the Oil and Gas Sector which is the biggest growth driver. In fact the publicly owned Ecopetrol has seen an immense FDI surge in the past few years and in spite of being overvalued to some, the stock still is a good bet due to the growth potential it has. Ban Columbia is another heavyweight which has outperformed most bank stocks worldwide.

    Although a strategic exposure in to any of these two companies may also lead to a positive output, individuals eager to acquire this asset class should look at Colombia ETFs that correlate to performance of the FTSE Colombia 20 index. The benchmark consists of the 20 most traded equities from the Colombian capital markets and fairly reflects the overall performance of the Colombian equity market.

    Broader Markets are currently offering only one unique play on Colombia which is Global X ETF [GXG]. The fund has given a year to date returns of 16.72% and has total net assets under management to the tunes of 176 million dollars.

    Investors must understand that Colombia is a heavily funded nation and is among the top aid receivers from USA, in fact a lot of this aid has already been put to good use to eradicate drug trafficking and the crimes associated with it. The improved security in the country and a pro business political stands has resulted in healthy flows of foreign investment, which are increasing every year.

    The Government is anticipating a $16 billion of offshore inflows in 2012 which is a 500 % increase from 2002 levels.

    Colombia is an emerging market that promises abundant returns on its comeback journey. Apart from the natural riches of the country, a lot of activity is underway in the infrastructure domain which will be a major growth booster for the economy. A rebound scenario for major Colombian stocks may enable Colombian funds like GXG ETF to post higher returns due to their standardised exposure.

    Global X Colombia Fund [GXG] operates at a net expense of 0.83%. It closely follows the name sake index in terms of asset allocation. Ecopetrol and Ban Colombia are the heaviest stocks sharing more than 25% of assets. Pacific Rubiales Energy Corp., Cementos Argos and Grupo Nutresa mke up for the other top holdings.

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