Colombia Capped: An ETF for South American Exposure

09/19/2017 2:54 am EST

Focus: GLOBAL

Jack Adamo

Editor, Jack Adamo's Insiders Plus

In my research, I recently fretted over several different emerging market funds and ETFs; each had their merits and drawbacks, notes Jack Adamo, editor of Insiders Plus.


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I decided to go with the iShares MSCI Colombia Capped ETF (ICOL) mainly because it has consistently struggled against adversity over the last year, has done well and has a low P/E.

Like most of these funds, it's more weighted to financial stocks than I'd like, but that's the inescapable landscape for this category.


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Columbia has suffered greatly over the last few years. It is the world's fourth largest coal exporter and has a substantial oil industry as well. That's largely why GDP growth has fallen from 4.7% in the last decade to 2.0% in 2016, although a 40-day truckers strike and 5.8% inflation were significant contributors as well.

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Still, a weakening dollar and recently enacted progressive tax legislation has helped keep stocks growing well, and should continue to do so. The tax reform bill was key to maintaining Colombia’s BBB investment-grade credit rating and should continue to improve the economic situation.

Also in Colombia's favor is that the government has relatively low debt. The Debt/GDP ratio is just 44.6% compared to 106% for the U.S.A., and its budget deficit is a very manageable 3.6% of GDP. The rate of gross national savings is also favorable at 21.8% versus 17.6% for the U.S. That helps promote national investing.

Incidentally "capped" in this ETF's name, just means that the fund limits the percent of the fund that any one stock may occupy. So, if, for example, a stock's price tripled and it exceeded the cap, the fund would sell part of its holdings to bring it back within the threshold.

I'm not wide-eyed about this investment. I'm going with it because it hasn't run away in price like some emerging markets and there are enough negatives in the mix to leave plenty of room for improvement.

With a P/E ratio under 14 and a price-to-book ratio of just 49%, the fund has plenty of room to grow comfortably should conditions continue to improve. Nonetheless, I'll keep a close eye on it. iShares MSCI Colombia Capped ETF is a buy up to $15.25.

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