Commodities Call For The Colombia ETF

When commodities swooned the past two years, plenty of emerging markets and the corresponding exchange traded funds felt the pain. The Global X MSCI Colombia ETF GXG was among those ETFs, losing an average of 34 percent in 2014 and 2015.

Those loses were severe though not surprising when considering Colombia's status as a major producer of copper, gold and silver. Colombia, South America's second-largest economy behind Brazil, is also one of Latin America's fastest-growing oil producers, putting GXG in a tough spot during oil's recent bear market.

However, commodities are rebounding this and Latin America ETFs are benefiting in significant fashion. Year-to-date, the best-performing single-country emerging markets ETF is the iShares MSCI Peru ETF EPU with a gain of over 46 percent. Up 17.4 percent, GXG is not too shabby, either, returning more than eight times what is offered by the MSCI Emerging Markets Index. 

“It should come as little surprise that India and China have been among the worst performers as they are the largest net importers of commodities according to the International Monetary Fund and have below average correlations to commodity prices. Commodity-export heavy countries however, like Brazil, South Africa, and Russia, have above average correlations to commodities and have been among the best performers,” according to Global X. 

Colombia has a correlation to silver of 0.25 and a correlation to Brent crude of 0.62. Overall, the country's commodities correlation is 0.61, according to Global X data. Colombia's commodities correlation is higher than that of any other Latin American market investable via a U.S.-listed ETF and 50 percent higher than the MSCI Emerging Markets Index, according to the data.

The concern is that higher commodities prices are driving Colombia's rate of inflation higher. Last month, the country's central bank surprisingly boosted interest rates to seven percent in an effort to damp inflation. Colombia's central bank started hiking interest rates last year and has done so for eight straight months.

Last month, Colombia's rate of inflation checked in at 7.93 percent, below economists' estimates and good for the first decline in 11 months, but that is still well above the two percent to four percent rate the central bank is targeting.

Investors have added $10.8 million of GXG's $82.4 million in assets under management to the ETF this year.