Tag Archives: colombia

Top And Flop Country ETFs Of Q1

The international stock markets had a rough run in the first quarter of 2016, with the Vanguard FTSE All-World ex-US ETF (NYSEARCA: VEU ) losing 0.6%, thanks to deflationary worries in the developed market, oil price issues, the Chinese market upheaval and its ripple effects on the other markets (see all World ETFs here ). While these issues made the country ETF losers’ list long, the space was not bereft of winners either. Several countries’ stock markets performed impressively in this time frame on country-specific factors. Plus, a soggy greenback boosted the demand for emerging market investing, increasing foreign capital inflows into those countries. In fact, the lure of international investing may be seen in the second quarter too, as the Fed is likely to opt for a slower-than-expected interest rate rise. Overall, Latin America won the top three winners’ medals, while the losers were scattered across the world. Investors may wish to know the best- and worst-performing country ETFs of the first quarter. Below, we highlight the top- and worst-performing country ETFs for the January to March period. Leaders iShares MSCI All Peru Capped (NYSEARCA: EPU ) – Up 30.8% The Peruvian market was on a tear in the first quarter, courtesy of the sudden spurt in commodity prices. After a rough patch, metals like gold and silver finally got back their sheen this year on a lower greenback. Even copper returned positively, as evident from the 2.6% return by the iPath DJ-UBS Copper Total Return Sub-Index ETN (NYSEARCA: JJC ). Being a large producer of precious metals, Peru greatly benefited from this trend, offering the pure play EPU a solid 30.8% return. iShares MSCI Brazil Capped ETF (NYSEARCA: EWZ ) – Up 27.2% While the economic growth prospects of Brazil are weakening, heightened political chaos is pushing up its market. Brazilian stocks have generally reacted positively to any political drama related to president Dilma Rousseff. Speculation that Rousseff is incapable of dissuading the impeachment proceedings that have been called against her, and the prospect of a change in governance set the Brazil ETFs on fire. Global X MSCI Colombia ETF (NYSEARCA: GXG ) – Up 22% The Colombian economy is a major exporter of commodities, from the energy sector (oil, coal, natural gas) to the agricultural sector (coffee). It has also a strong exposure to the industrial metal production market. Thus, a rebound in the commodities market led to the surge in this ETF. Though from a year-to-date look oil prices are down, commodities bounced in the middle of the quarter. This might have given a boost to the Colombia ETF. Losers WisdomTree Japan Hedged Financials ETF (NYSEARCA: DXJF ) – Down 24.1% At its January-end meeting, the BoJ set its key interest rate at negative 0.1% to boost inflation and economic growth. The BoJ then hinted at further cuts in interest rates if the economy fails to improve desirably. However, the introduction of negative interest rates weighed on the financial sector, as these stocks perform favorably in a rising rate environment. Also, the currency-hedging technique failed in the quarter due to a falling U.S. dollar. This was truer for the Japan equities, as the yen added more strength by virtue of its safe-haven nature. The twin attacks dulled the demand for the hedged Japan financials ETF, which lost 24.1% in the quarter. Deutsche X-trackers MSCI Spain Hedged Equity ETF (NYSEARCA: DBSP ) – Down 21.6% The Spanish economy is bearing the brunt of deflationary threats despite the ECB’s massive policy easing. Consumer prices in Spain are likely to decline 0.8% year over year in March 2016, the same as in February, as per Trading Economics . This led the Spain ETF to lose 21.6% in the first quarter. SPDR MSCI China A Shares IMI ETF (NYSEARCA: XINA ) – Down 19.21% Since the first quarter was mainly about the nagging economic slowdown in China, most of the China ETFs had a tough time. Within the bloc, XINA lost the most in the quarter, shedding over 19%. Original Post

Enjoy High Yield With These Low-Beta EM Local Currency Bond ETFs

Amid low yield all over the world, income-starved investors are presently in search of solid current income. After all, the Eurozone and Japan are now following a negative interest rate policy while rates at other developed economies are at rock-bottom levels. In the U.S., which tried to go against the flow by raising key rates after a decade last December, the confidence level weakened this year after a global market rout. Investors flocked to safe-haven assets like government bonds and dumped risky assets like equities. As a result, yields on the benchmark 10-year U.S. Treasury fell 50 bps to 1.74% on February 23, 20 16, from the start of the ye(ar. Yields on Japan’s benchmark 10-year government bond slid to below zero for the first time in early February and yields on the 10-year German bunds also slid to multi-month levels. In such a situation, investors’ craving for a steady current income is warranted. One space that offers solace is emerging market (EM) local currency bonds, which provide a solid yield. Fading hope of frequent Fed hikes this year should also bring some relief to emerging market securities. Local currency products are likely to gain this year because the U.S. dollar has been subdued, having lost about 1.5% in the year-to-date frame (as of February 22, 20 16). So investors can enjoy some gains from the emerging market currency appreciation. Also, emerging market currency bonds and the related ETFs provide investors greater protection to capital gains than EM equities. Plus, what can be a better bet if those bond ETFs have low beta that works as a solid bulwark against market volatility. Keeping this in mind, we highlight five local-currency denominated EM bond ETFs that have a negative beta and offer smart yields. Even if these bond ETFs fail to please investors by capital gains, hefty yields will be there to make up for the underperformance. Investors could make a fixed income play with local currency denominated bond ETFs in the near term. Market Vectors J.P. Morgan EM Local Currency Bond ETF (NYSEARCA: EMLC ) – Beta Negative 0.50 This fund provides direct exposure to local currency bonds issued by emerging market governments by tracking the J.P. Morgan GBI-EMG Core Index. It holds 203 securities in its basket with an average modified duration of 4.83 years and average years to maturity of 7.03. In terms of country exposure, Malaysia (8.63%), Poland (8.45%), Supranational (8. 19%) and Mexico (8.06%) occupy the top four spots. About 74% of the portfolio is focused on investment-grade bonds with BBB or higher ratings. EMLC is the largest and popular ETF in the local currency emerging bond space with an AUM of over $ 1 billion and average daily volume of 760,000 shares. It charges 47 bps in annual fees and has gained 1.7% so far this year (as of February 22, 20 16). Additionally, the product has an excellent dividend yield of 6. 18% per annum. PowerShares Emerging Markets Sovereign Debt Portfolio ETF (NYSEARCA: PCY ) – Beta Negative 0.28 This 8 1-security ETF includes bonds issued by Mexico, Panama, Peru, Uruguay, Venezuela, Bulgaria, Russia, South Africa, Turkey, Brazil, Colombia, Indonesia, Korea, Philippines, Qatar, Argentina, El Salvador and Vietnam. The fund has an asset base of $2.57 billion and charges 50 bps in fees. The fund’s effective duration is 7.83 years while its years to maturity are 13. 14. Around half of the bonds are rated BBB or higher. The product yields 5.58% annually (as of February 22, 20 16) and has added 0. 1 1% so far this year (as of February 22, 20 16). SPDR Barclays Capital Emerging Markets Local Bond ETF (NYSEARCA: EBND ) – Beta Negative 0.52 This product tracks the Barclays Capital EM Local Currency Government Diversified Index, which is designed to measure the performance of fixed-rate local currency sovereign debt of the emerging market countries. In total, the fund holds 236 securities with an average maturity of 7.59 years and adjusted duration of 5.33 years. In terms of credit quality, it focuses on bonds having Baa or higher ratings with almost 60% weight. South Korea ( 12.2%) and Mexico ( 10.3%) take the top two spots. EBND has an AUM of $52.4 million and average daily volume of 30,000 shares. Expense ratio comes in at 0.50%. The fund is up over 2% in the year-to-date frame (as of February 22, 20 16) and has a 5.03% 30-day SEC yield. WisdomTree Emerging Market Local Debt ETF (NYSEARCA: ELD ) – Beta 0.54 This actively managed ETF does not track a specific benchmark, but seeks a high level of total return consisting of both income and capital appreciation. It currently holds 1 17 securities with average years to maturity of 7.75 and an effective duration of 4.92 years. Poland, Brazil and Mexico are the top three countries. About 82% of the bonds are rated BBB or higher. The fund has amassed $368.5 million in its asset base and charges 55 bps in fees per year. It trades in a good volume of more than 150,000 shares a day on average and has a good yield of 5.49% in annual dividend. The ETF has lost about 0.2% so far this year (as of February 22, 20 16). Market Vectors Emerging Markets Aggregate Bond ETF (NYSEARCA: EMAG ) – Beta Negative 0.60 The comprises sovereign bonds/corporate bonds denominated in U.S. dollars, euros or local emerging markets currencies and includes both investment-grade and below-investment-grade-rated securities. While the U.S. dollar takes about 57.7% of the fund, other currencies account for the rest. Effective duration is 4.80 years and years to maturity are 6.68. The fund has amassed about $ 14.2 million in assets and charges 49 bps in fees. Government bonds make up 55.2% of the fund’s portfolio while energy ( 12.2%) and financials ( 1 1.6%) round out the top three positions. Around 64% of the portfolio is investment grade in nature. EMAG yields 4.83% annually and is up 2% in the year-to-date frame (as of February 22, 20 16). Original post

Enersis Is A Defensive LatAm Play With Attractive Yield And Significant Growth Potential

Enersis S.A. (NYSE: ENI ) Fundamentals (FYE- Dec. 31 st ) Enersis S.A. is a Chilean integrated electricity holding company and a subsidiary of Italy-based multinational energy group Enel (60.6% stake). Enersis is the largest private power platform in Latin America owning 17.3 GW of installed generation capacity spread between Chile, Argentina, Brazil, Colombia and Peru. Enersis controls six distribution companies that service 15.1 million clients: Chilectra (Chile), Ampla and Coelce (Brazil), Edesur (Argentina), Edelnor (Peru) and Codensa (Colombia). Enersis’ main subsidiary is listed generation company Endesa Chile (60% stake). Enersis corporate restructuring – The spinoffs will become effective in 1Q16, creating six companies: ENI Chile and Americas, EOC Chile and Americas, Chilectra Chile and Americas. ENI Americas will launch a tender offer for EOC Americas’ minority shareholders in 2Q16. The second EGMs to vote the merger of the Americas entities to create ENI Americas will occur 90 days after the split – 60 days of trading plus 30 days prior to the session. Minority shareholders will have a withdrawal right period of up to 30 days after the second round of EGMs. The merger of Enersis Americas is expected to complete in 3Q16 (around July/August). In order to persuade the AFPs (Chilean managers of pension funds) to vote in favor of the restructuring, which proved successful, ENI’s Board of Directors resolved to amend the proposal for the tender offer for EOC Americas’ shareholders (post-split), raising the price from CLP (Chilean Peso) 236/sh to CLP285/sh. Financials FYE- Dec. 31 FY10 FY11 FY12 FY13 FY14 In US$ mn Revenue 9,393.9 9,352.9 9,297.20 8,965.86 10,381.96 Revenue growth (%) 1.41 (0.44) (0.60) (3.56) 15.79 Gross profit 3,817.4 3,746.8 3,492.8 3,966.7 4,113.4 Gross profit margin (%) 40.6 40.1 37.6 44.2 39.6 Operating profit 2,439.2 2,241.7 2,105.0 2,491.9 2,562.5 Operating profit margin (%) 25.9 23.9 22.6 27.8 24.7 Net profit 695.9 537.4 540.1 942.5 873.3 Net profit margin (%) 7.4 5.7 5.8 10.5 8.4 EPS (GAAP) 1.04 0.80 0.83 0.96 0.89 Dividends per Share 0.33 0.53 0.41 0.30 0.48 Capital Expenditures 1,003.5 978.7 1,008.2 1,106.0 1,554.9 Cash & ST Investments 1,387.1 1,747.3 1,445.9 3,375.1 2,570.1 Total Assets 18,614.4 19,656.3 18,958.8 21,722.7 22,787.1 Total Debt 5,269.3 5,643.9 4,778.7 4,971.8 5,132.7 Total Equity 5,346.4 5,575.7 5,572.9 8,828.6 8,876.4 ROA 8.40 6.53 6.62 7.83 6.62 ROE 13.41 9.84 9.69 13.09 9.86 No. of Employees 12,264 10,844 11,087 11,574 12,275 Competitive Advantage The company owns a difficult-to-replicate network of transmission and distribution assets providing essential electricity to its customers. Its hydroelectric generating plants, around 50% of its generating fleet, are some of the lowest cost power-generation sources and have extremely long operating lives. Chile represents almost 25% of consolidated EBITDA net of minority interest and is widely recognized as the most stable market in Latin America. It also has the region’s most predictable and reliable regulatory framework. Enersis’ true earnings power has been masked by recent droughts in several countries and hence gross margins are expected to improve once normal rainfall returns. Major Risks Hydrology risks – In a scenario of continued scarce rainfall, lower hydro load factors would be compensated by higher thermal load factors leading to higher expenses and lower margins Deteriorating Brazilian economics and utility sector fundamentals – Further deterioration in macroeconomic conditions in Brazil, power rationing and unfavorable regulatory changes are some of the risks that could negatively impact and may lead to substantially lower demand Rationing in Chile – A scenario of extremely low rainfall and thermal shutdown (due to unavailability of fuel) could lead to power rationing which would negatively impact the company Corporate restructuring remains an overhang Outlook Targeting growth in Brazil – Enersis has US$1.2B left from the 2012 capital increase to be used in M&A in Brazil, and the company’s priority is to grow in the distribution business. Its holding is targeting distressed distribution concessions from Eletrobras (NYSE: EBR ) that is likely to be privatized in 2016. The first in the pipeline is Goiás-based disCo Celg whose lengthy privatization process has just kicked off. Brazil is expected to be the main growth platform for the future Enersis Americas, as Colombia and Peru impose market share restrictions for the company which restrict growth potential while Brazil doesn’t have such restrictions. Colombia and Peru forbid Endesa Chile from having a market share in generation of more than 25%. Enersis has a market share of 22% in the Colombian generation sector and 24% in the Peruvian sector, and hence, Enersis could add no more than ~470 MW in Colombia and ~100 MW in Peru, while in Brazil, the growth potential is hypothetically unlimited. Environmental and social issues in Chile limit the approval and construction of new generation projects while Argentinean macroeconomics remained as an impediment to new investments in the past several years. Sound dividend stream in the near future – Post the conclusion of El Quimbo (late 2015), the only Greenfield project under construction will be Los Cóndores which is expected to start-up in late 2018/early 2019 with a capex budget of US$662M to be spent over four years. Hence, a boost in cash flow generation that should allow Endesa Chile to pay higher dividends, with an estimated dividend yield of 3-4% from 2016 onwards, could be attractive to defensive investors searching for yield. Investment Rationale & Conclusion LatAm consolidator poised to grow – Post the ongoing corporate reorganization, Enersis will focus on growth in Latin America and will prioritize Brazil which is hiking return rates for new investments. Low levered at 0.9x net debt/EBITDA, and with US$1.7B cash left from the 2012 capital increase, Enersis will also look for growth outside Chile and has declared interest in acquiring Brazilian distribution assets. Argentina is an important optionality for Enersis – The Argentine generation units El Chocón, Endesa Costanera and Dock Sud represent 26% of Enersis’ generation capacity but only 6% of the genCo business EBITDA. The distribution company Edesur accounts for 24% of Enersis’ distribution sales volumes but contributed with only 10% of consolidated disCo EBITDA in 9M15, and hence, its margins in Argentina are expected to significantly improve over the next few years. Enersis’ stock provides an attractive valuation and, most importantly, offers the greatest upside potential coming from regulatory improvements in Argentina and growth in Brazil (Greenfield and brownfield projects). It provides a direct exposure to the benefits of El Niño and recovering hydrology in Chilean utilities. Colombia and Peru are expected to outperform their South American peers in terms of GDP and power demand growth, offering opportunities for Endesa Chile which is the most relevant player in both countries behind the local players. Enersis currently trades at $12.77 (closing price as of Feb. 22, P/E TTM of 11.76), with its 52-week range of $10.33-$18.72, and looks attractive with strong potential to outperform over the medium to long term for reasons outlined below – The impact of a stronger El Nino phenomenon will results in normal rains and will decrease operational expenses, resulting in higher margins. Margin gains resulting from lower fuel prices to drive profitability. Significant potential from Brazil and Argentina markets to drive growth. Endesa’s experience and track record in Peru and Colombia will be key drivers for capturing growth opportunities in those markets. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: References : Company Annual Reports, Company Press Releases, Investor presentations, SEC Filings -Form 20-F and 6-K, Morningstar, BNamericas, Yahoo Finance