Find Your ETFs in Dangerous Places

by Tom Taulli | April 4, 2011 2:50 pm

Jim Rogers, who co-founded the Quantum Fund in the early 1970s, is a legendary investor.  Over a 10-year period, the fund clocked a staggering 4,200% gain.

While Rogers could have retired, he has continued to find new investment opportunities.  For example, during the early 1990s, he road his motorcycle across six continents and wrote a book about his experiences, called Investment Biker.  True, some of the countries were dangerous, but the opportunities were strong (in 2007, Rogers sold his New York City mansion and moved to Singapore).

For individual investors, it’s certainly much easier to invest in foreign markets — even those that are, well, dangerous.  For example, a variety of exchange-traded funds are often based on standard indices and have fairly low expenses.

Here are a few to consider:

iShares MSCI Mexico Investable Market Index (NYSE:EWW[1])

While Mexico has been a strong grower of the past 20 years, the fact is that the country is heavily dependent on the U.S. for exports.  It’s no surprise that when the recession hit Mexico saw a 6.5% drop in GDP during 2009.

Unfortunately, there remain the horrible problems of drug killings and kidnappings.  It’s clear that these events hamper growth and investment.

But Mexico does have strong companies — and also has large oil reserves. A way to participate is through the iShares MSCI Mexico Investable Market Index ETF, which is based on the corresponding MSCI index.

But the portfolio is highly concentrated.  Keep in mind that over half the portfolio is invested in five companies:  America Movil, Wal-Mart De Mexico, Grupo Mexico, Fomento Económico Mexicano and Grupo Televisa.

Market Vectors Egypt Index (NYSE:EGPT[2])

The events in Egypt have been incredible.  It looked as if there could have been a bloodbath but somehow the reformers prevailed.  Yet, in the chaos, the stock market had to be shut down for some time.

Even before the revolution, Egypt had seen volatile swings in equities.  Moreover, it’s far from clear what the new Egypt will look like.  So it’s a good bet there will be continued volatility.

But if you want to invest in an emerging democracy, then one option is the Market Vectors Egypt Index ETF.  It has companies that are headquartered in Egypt or get a minimum of 50% of revenue from the country.  In other words, the fund actually provides exposure to investments in various Middle Eastern nations.

iShares MSCI South Korea Index (NYSE:EWY[3])

In 1953, following the Korean War, South Korea underwent a surge in economic growth.  In fact, the country is now the fourth-largest economy in Asia.

Of course, the big risk factor is North Korea.  Recently, the tensions have warmed up, with North Korea’s sinking of a South Korean ship as well the shelling of an island town.

But if you can stomach the hostilities, the iShares MSCI South Korea Index ETF offers exposure.  Over the past 10 years, the average annual return was 18.5%.  Then again, South Korea is a major exporter to China — which has helped to drive the strong growth.

Market Vectors Africa (NYSE:AFK[4])

When it comes to foreign investing, Africa gets little attention.  After all, the continent has a history of strife — war, famine and even genocide.  Such things usually scare away investors.

But there is definitely hope.  Africa is rich in natural resources and has a large population, which is generally getting richer.

So for those brave investors, there is the Market Vectors Africa ETF.  It’s based on the Dow Jones Africa Titans 50 Index, which is dominated by the following countries: Nigeria (16.5%), Morocco (11.1%), Egypt (20.5%) and South Africa (28.9%).  But there are also investments in other countries like Kenya, Angola, Ghana, Mali and Zambia.

In 2009, the ETF increased 35% and then saw a 25.3% return the following year.  However, so far in 2011, it is down 6.4%.

Endnotes:
  1. EWW: http://studio-5.financialcontent.com/investplace/quote?Symbol=EWW
  2. EGPT: http://studio-5.financialcontent.com/investplace/quote?Symbol=EGPT
  3. EWY: http://studio-5.financialcontent.com/investplace/quote?Symbol=EWY
  4. AFK: http://studio-5.financialcontent.com/investplace/quote?Symbol=AFK

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