A Chilly View of the Chile ETF

There are five major exchange traded funds tracking Latin American countries with the emerging markets designation (Argentina is classified as a frontier market).

Year-to-date, none of those ETFs have performed iShares MSCI Chile Capped ETF (NYSEArca: ECH). ECH, the lone Chile ETF headed into Thursday with a 2014 loss of 10.7%, or 450 basis points worse than theiShares MSCI Brazil Capped ETF (NYSEArca: EWZ).

Although Chile is viewed by some market observers as the most advanced and open South American economy and it is undeniably home to Latin America’s highest sovereign credit rating (AA-), the copper-producing giant is not doing much to endear itself to global investors at the moment. [Chile ETF Falters as GDP Slumpts]

“Chile remains a bastion of conscientious economic policymaking owing to its stable polity and responsible leadership. However, ahead of the election last December and inauguration last March of Michelle Bachelet to a second inconsecutive presidential term, macroeconomic trends in the world’s largest producer of copper had been taking a turn for the worse in the face of inauspicious headwinds from declining global demand stemming from the relapse in Western European and slowdown in emerging market industrial output,” said S&P Capital IQ in a new research note.

Although the research firm does not rate ECH, it did downgrade its view of Chilean stocks to market-weight, which is better than S&P’s underweight view on Brazilian equities.

The $377.7 million ECH, which celebrates its seventh anniversary next month, features a mere 12.4% allocation to the materials sector, surprisingly small for an ETF tracking stocks in the world’s largest copper-producing nation.

ECH’s weight to utilities stocks is more than double its materials weight. The fund’s financial services weight is 620 basis points larger than its materials allocation, but those factors do not mean ECH is immune from copper’s price action. Quite the contrary. [Chile ETF Tries to Rise as Copper Falls]