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  • Frontier Investing With Colombia Equity Traded Funds 0 comments
    Mar 19, 2013 4:45 AM

    Foreign capital which was lately concentrated in the BRIC nations (Brazil, Russia, India and China) has seen a definite even though a partial shift towards the capital markets of the frontier economies or third tier countries as they are termed. Nations like Colombia from the South of Americas is a valid testimony to this trend indicating an increase in risk appetite for volatile products on the part of both traders and investors. A sizable chunk of overseas investments has found its way through the investments in Colombian broader market products like GXG ETF as the Colombia ETFs are primarily valid bench mark bound and are easily available to first world investors.

    Colombia is the world number one producer of coffee, along with this it is the world front runner in production petroleum, flowers and textiles. Its economy is growing close to 7% yearly. More positive facts about the country include a drop in unemployment numbers. Also inflation has come down to a considerable level.

    Previously the country was associated with terrorism, drug trafficking and dreadful things like kidnapping but today the state's government has achieved a stable secure internal environment, regulating conditions for overall growth and is inviting direct foreign investment into the country. Investor focus has indeed seen a shift due to this country's rising middle and educated segment of society, rising domestic demand and expansion of local businesses.

    FDI (foreign direct investment) in Colombia in the year 2011 rose more than 120% as compared to the figures in the preceding year. The last year saw more of it due to increase in positive trading ties with the world and transparent governmental guidelines for businesses and all forms of investment. It is seen that the Peso (Colombian currency) is increasing in value against the U.S dollar as its economy strengthens further; this also means that investors will benefit as the price of their investment grows simultaneously.

    The government is willing to improve local infrastructure like roads, transport - communication and ports etc. It has set aside approximately $ 3 plus billion for the above job.

    In the year 2012 another noteworthy improvement was apparent for its country risk (includes political risk + economic risk + transfer risk + exchange rate risk + sovereign risk) was measured to be reduced than before. Security situations have improved with the demobilization of military groups done some years back. Economic and legal reforms are a top priority for the state. The government which encourages tourism and related activities has a no tolerance attitude towards most crimes in the nation and means serious business when it comes to foreign participation and infrastructure growth in Colombia.

    Multiple routes are available such as ADRs (American depository receipts) of Large Cap Colombian Equity or direct investments in the Bolsa de Valores de Colombia (BVC), the national exchange. Most foreign investors, however use an inverse strategy through exchange traded funds (OTC:ETFS).

    Colombia Equity funds which are attuned to an Index and invest in the top Colombian stocks that it comprises of. A fact that such products are listed on major U.S exchanges such as the NASDAQ or NYSE also provides safety assurance that the issuing company has met the United States listing and regulatory rules.

    For instance a product like Colombia Global X fund follows an index based on solutions given by AG &G, Germany. Rather than outperforming the index, most pure play Colombia funds like this one, will try to duplicate its benchmark returns. Speculation risks are further lessened through ETF investing as primarily the basket of stocks helps minimizing single company specific risk and broadening diversification and knowing that a team of managers are closely screening the performance of stocks that make up the basket is an added respite.

    Global X ETF Colombia [GXG] delivers as per the performance of 20 most liquid and largest stocks of the companies that have their business interests vested in and are domiciled and listed in Colombia or their respective ADRs. The name sake FTSE benchmark is a fair reflector of Colombia's fiscal health as stocks included are from varied sectors of the South American frontier economy. With an annual expense at 0.68%, GXG Colombia ETF will give you top three assets in the form of Ecopetrol S.A. [13.95%], Ban Colombia S.A. Prf [12.46%] and Pacific Rubiales Energy Corp [7.09%].

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