Market Vectors Introduces Colombia ETF With Cash Creations

March 15, 2011 by  
Filed under Commentary, ETF IPOs (New ETFs)

Van Eck today (3/15/2011) introduced the Market Vectors Colombia ETF (COLX).  The new ETF seeks to track an index providing exposure to publicly traded companies that are domiciled and primarily listed in Colombia or that generate at least 50% of their revenues in Colombia.

Unlike most other ETFs, COLX handles all of its creations and redemptions for cash, rather than in-kind securities.  As such, COLX may be less tax-efficient than an investment in a conventional ETF.  There are other risks associated with this process, especially when underlying markets are disrupted.  This is the same mechanism used by the Market Vectors Egypt ETF (EGPT).  EGPT has been holding a significant amount of cash, and it is trading at a hefty premium that will collapse when Egyptian markets reopen.

COLX has 27 holdings, and the indexing methodology caps the weight of any individual constituent at 8% during the quarterly rebalancing.  The largest holdings currently include BanColombia 12.1%, Inversiones Argos 8.0%, Ecopetrol 8.0%, Grupo Nacional de Chocolates 7.0%, and Corp Financiera Colombiana 6.4%.

Representation is concentrated in just five sectors with Financials at 33.3%, Energy 29.6%, Materials 17.2%, Consumer Staples 11.8%, and Telecommunications 7.8%.  The combined representation of the other five sectors totals less than half a percent:  Consumer Discretionary, Health Care, Industrials, Technology, and Utilities.

COLX faces direct competition from Global X FTSE Colombia 20 ETF (GXG) and indirect competition from Global X FTSE Andean 40 ETF (AND), which has a 29% allocation to Colombia.  GXG is less diversified with its top three holdings comprising nearly 46% of the fund.  COLX also has a slight fee advantage with its expense ratio capped at 0.75% versus 0.78% for GXG.

The Van Eck Investment Case for Colombia (pdf) provides good background material and the website contains the usual lineup of a summary page, fact sheet (pdf), summary prospectus (pdf), and full prospectus (pdf).

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentioned.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

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