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A few weeks ago I told you about opportunities in a huge Asian country overshadowed by an even bigger neighbor. I was talking about India. The bigger neighbor, of course, is China.
There’s a similar situation in South America … a dominant giant (Brazil) that can make us overlook smaller but still very significant players nearby.
And last week brought a major new development: A freshly-minted exchange traded fund (ETF) that opens up a whole new frontier.
Ag = Argentina
We’ve written a lot about Brazil in Money and Markets. And with good reason — Brazil is the powerhouse of Latin America.
Just to the south of Brazil lies Argentina. In terms of land area, Argentina is the eighth-largest country in the world with 2,400 miles separating its northern and southern tips. At 40 million people, it is also one of the most populous Spanish-speaking nations. Some 13 million of those are in and around the capital city of Buenos Aires.
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Where did this word “Argentina” come from? The answer is silver. Think back to high school chemistry … the periodic table symbol for silver is Ag.
Look deeper and you’ll see that Ag came from the Latin word for silver: Argentum. Now you know why Spanish explorers were interested in this distant place. Mining was — and still is — one of the main industries in Argentina. More recently, the discovery of energy reserves in Tierra del Fuego gave Argentina a new potential growth sector.
However, the really big business in Argentina is food. The country is the world’s second largest corn exporter and the third largest soy exporter. This is indeed a very nice position to be in as food prices are rising around the globe.
Until recently there was no easy way for U.S. investors to get exposure to Argentina as a whole. Assembling a diversified portfolio of individual stocks was difficult and expensive.
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But now we have …
The First Argentina ETF
Last week brought the debut of Global X FTSE Argentina 20 ETF (ARGT). This ETF is the first opportunity for average investors to get a slice of Argentina.
ARGT will track an index of the 20 largest public companies that are either headquartered in Argentina or have substantial revenue or assets there.
As you might expect, given its history and name, Argentina’s new ETF is heavy on natural resources. Yet a look at the sector weightings in the chart below suggests ARGT may be more diversified than many other single-country funds.
ARGT presently has no allocation to health care, industrial, or consumer discretionary stocks — probably because no such Argentinean companies have made it into the top 20 yet. The top holding is Tenaris (TS), a global leader in the manufacturing of energy pipelines.
And it has something never seen before in a Latin America ETF — a 10 percent allocation to the technology sector. Most Latin America ETFs have between 0 percent and 2 percent allocated to technology.
What Are the Risks?
If you asked this question, I’m proud of you. Too many people rush headlong into newly-available niches without thinking about risk.
Argentina does not currently qualify for “emerging market” status in the MSCI market classification system. Instead, it still carries the riskier “frontier market” designation.
The idea of investing in Argentina was lunacy just a few years ago. That’s because the country was almost synonymous with “inflation” in the mind of many global leaders …
Less than ten years ago, in late 2001, Argentina’s government formally defaulted on $132 billion in foreign debt. The country was in deep recession for years as leaders grappled with the implications of their folly.
Just as it looked like Argentina’s nightmare was ending, the 2008 financial crisis provided another setback. But the fruits of that crisis — massive money creation in the developed world — may prove to be Argentina’s salvation.
The resulting inflation in the U.S. and Europe is making Argentina’s food, energy and metal resources much more valuable. Foreign companies are now practically forced to invest in Argentina! They can’t find enough of what they need anywhere else.
Could Argentina go down the drain once again? It’s always possible. But with a new ETF alternative, you have a good chance to ride any bull market that develops. So take a look at ARGT, and be sure to use a limit order if you decide it’s right for your portfolio.
Best wishes,
Ron