Top ETFs to Navigate Colombian Election Volatility

2018 marks a significant year for presidential elections across South America, starting with Costa Rica in February and culminating with Brazil's vote in early October. In the interim, countries including Paraguay, Venezuela, Colombia, and Mexico also head to the polls. Colombia’s presidential election stands out as the first since the landmark 2016 peace agreement between the government and the Revolutionary Armed Forces of Colombia (FARC) rebels.

Colombian voters face a choice between Iván Duque, a right-wing candidate skeptical of ongoing peace talks with FARC, and Gustavo Petro, a leftist former Bogotá mayor with roots in the M-19 guerrilla movement. The May 27, 2018 election resulted in no clear majority, prompting a runoff scheduled for June 17, 2018.

Despite electoral uncertainties, Colombia’s economy is projected to expand by 3% this year, presenting a compelling opportunity for investors seeking early entry into this emerging market before the political landscape stabilizes.

Investors optimistic about Colombia’s growth prospects might consider the Global X MSCI Colombia ETF (NYSEARCA: GXG) or the iShares MSCI Colombia ETF (NYSEARCA: ICOL). For broader exposure across South America during this dynamic election cycle, the iShares Latin America 40 ETF (NYSEARCA: ILF) is a noteworthy option.

Global X MSCI Colombia ETF

Launched in 2009, the Global X MSCI Colombia ETF aims to replicate the performance of the MSCI All Colombia Select 25/50 Index. The fund primarily invests its $112.65 million assets in American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) tied to index constituents, offering targeted exposure to Colombian-linked companies. The portfolio is top-heavy, with Bancolombia S.A. ADR (NYSE: CIB) and Ecopetrol S.A. ADR (NYSE: EC) accounting for 27.54% of holdings.

With an annual expense ratio of 0.61%, slightly above the category average of 0.54%, GXG trades within a 52-week range of $9.33 to $11.51 and was priced at $10.92 as of June 2018. It has delivered an 8.98% year-to-date return and offers a 1.76% dividend yield. (See also: 5 Ways You Can Invest in Colombia From Abroad.)

iShares MSCI Colombia ETF

Established in 2013, the iShares MSCI Colombia ETF tracks the MSCI All Colombia Capped Index by investing at least 90% of its assets in companies with substantial Colombian operations. Similar to GXG, the fund’s portfolio is concentrated, with its top five holdings—Ecopetrol, Bancolombia, Banco Davivienda S.A. (BVC: PFDAVVNDA), Interconexion Electrica S.A. E.S.P. (OTC: IESFY), and Grupo Nutresa SA (OTC: GCHOY)—making up 42.58% of assets across 28 securities.

Though smaller with $23.74 million in net assets, ICOL matches GXG’s 0.61% annual fee. As of June 2018, it has achieved a three-year annualized return of 2.68%, a one-year return of 10.68%, and a 7.92% year-to-date gain, alongside a 1.4% dividend yield. (See also: Colombia Nurtures a Hub for Tech Startups.)

iShares Latin America 40 ETF

Founded in 2001, the iShares Latin America 40 ETF tracks the S&P Latin America 40 Index by investing predominantly in its 40 largest Latin American companies. The fund’s top 10 holdings represent over half of its portfolio, featuring giants like Vale S.A. ADR (NYSE: VALE), Itau Unibanco Holding S.A. ADR (NYSE: ITUB), and Banco Bradesco S.A. ADR (NYSE: BBD).

With $1.37 billion in assets under management, ILF is significantly larger than GXG and ICOL and offers a competitive expense ratio of 0.49%. It has posted a 3.46% return over the past three years but experienced a 9.72% decline year-to-date as of June 2018, making it an intriguing choice for contrarian investors. (See also: The Best 4 Places to Invest in Latin America.)

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