ETF Expert

I began covering Chile in May of 2007, even in the absence of a corresponding exchange-traded fund. The Latin American country was/is a dominant player in the export of copper. What's more, it's GDP growth was as strong as any in the region. And its budget was essentially in check.

Yet the only alternative up to that point, the closed-end Chile Fund (CH), had been significantly underperforming iShares Latin America (ILF). And the underperformance wasn't small potatoes.

Between the 3 years 4/1/2004 through 3/31/2007, The Chile Fund (CH) had provided an exceptional aggregate return of 120%. Yet the simple choice of a passive, regional index in the iShares Latin America (ILF) offered 195%. (7,500 basis points is hardly something to sneeze at!)

Indeed, it's hard to justify an actively managed country fund with expenses as high as 2%+, when there's a passive index for the entire region that's outperforming with only 0.5% expense. (Note: The portfolio manager for CH was pretty angry with me for pointing out performance issues and expenses that an investor has to pay; in truth, I had heaped a great deal of praise on "HIS" closed-end fund.)

In spite of iShares Latin America's (ILF) better numbers, I still looked forward to a Chile ETF. And near the start of the bear market in November of 2007, I finally got my wish. Of course, by then, the world was working its way into a vortex.

Here in 2009, however, with expectations that the global industrial cycle is in the process of being "reflated," copper king Chile is back on a lot of people's maps. So I thought I'd take a look at performance issues once more; that is, how would The Chile Fund (CH) compare over the last year against its newer rival, iShares MSCI Chile (ECH).

I suppose the active portfolio manager of CH would, once again, tell me that I am missing a big picture. But you tell me?

iShares MSCI Chile (ECH) was less volatile than CH during the systemic financial breakdown in October 2008.  iShares MSCI Chile (ECH) lost less than CH during the March retrenchment period. What's more, the passive index approach of using the MSCI Chile Index via ECH led to a 1-year loss of approx -4.6%; in contrast, the Chile Fund (CH) lost approx -12%.

Granted, the charts aren't flawless. And, arbitrary calendar periods are… arbitrary calendar periods. But I still can't see why I'd pursue the closed-end country fund when a passive country index exists as an alternative.

If you'd like to learn more about ETF investing… then tune into "In the Money With Gary Gordon." You can listen to the show "LIVE", via podcast or on your iPod.

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.