Single-Country ETFs have been huge winners over the last 3-5 years. Those who braved the Korean waters with the iShares Korea Fund (EWY) witnessed $20,000 in November 2002 become $60,000 by November 2007.
In spite of Asia’s prominence in the news, there were big gains in the Americas as well. A $20,000 investment in the iShares Mexico Fund (EWW) 5 years ago is worth roughly $90,000 today.
There are a few problems with these assessments, though. For one thing, they conveniently begin at the start of our global bull market 5 years earlier (i.e., October 2002).
The other issue involves the lack of diversification in many single-country ETFs. I’ve pointed out in a previous single-country ETF post that the iShares Mexico Fund (EWW) relies on 25% of its gains from one company, America Movil. Similarly, the iShares Korea Fund (EWY) is beholden to Samsung with a 20% weight.
Focused fund investors might be intrigued by the high weightings. Then again, the respective regional ETFs have beaten each of these funds handily — over 2 years and 5 years.
In the last 2 years, the iShares Latin 40 Index (ILF) has picked up 100% whereas Mexico (EWW) is up 50%. And while the iShares MSCI Pacific ex-Japan (EPP) is performing at the same pace as Korea (EWY), it has done so with significantly less volatility.
The question then becomes… why should we invest in a single-country ETF at all? Answer: When a single-country fund is diversified across different economic segments and no company has more than a 15% weight, an aggressive investor may wish to pursue a narrower focus.
The new iShares Chile Fund (ECH) fits my criteria nicely. The top weighted company does hit the higher end of my limit with a 15% weight. Nevertheless, you have Utilities, Industrials, Materials, and Consumer Staples well-represented in the sector breakdown.
Worried about the global credit crunch? Financials only account for 9% of the index. Concerned about the country’s prospects going forward? Learn more in Warming Up to Chile.
The fund is not particularly cheap, with a 0.74% expense ratio. Yet if you are troubled by Chile’s minuscule weighting in the iShares Latin America Index (ILF), or if you want an investment that is more tied to infrastructure, then the iShares Chile Fund (ECH) may fit your investor profile.