Checking In...The "Other" Colombia ETF

Most investors that actively follow emerging markets ETFs, particularly the Latin American funds, probably know about one ETF devoted to Colombia. However, many investors, regardless of their emerging markets acumen, probably don't know there are actually two ETFs tracking Colombia. The “other” Colombia ETF is the Market Vectors Colombia

, which made its debut in March 2011 as the only credible rival to the Global X FTSE Colombia 20 ETF

. Having garnered just $1.6 million in assets under management since inception, it's clear the Market Vectors Colombia ETF isn't off to a stellar start. It's not awful considering the market environment. Just kind of average. For the most part, the slack start to COLX's life really isn't the ETF's fault. Inflation issues in Brazil have plagued the LatAm ETF landscape this year and that includes new and established ETFs. Simply put, 2011 has been a bad year to be long emerging markets and while Colombia's growth prospects remain solid, the country has been caught in the downdraft. None of these issues can be blamed on COLX or its issuer. Actually, the biggest problem facing COLX is pretty easy to identify: Colombia is not yet a mature enough market to warrant multiple ETFs devoted exclusively to it. In 2010, Colombia was the 35th-lagest economy in the world. That means there are four emerging markets with larger economies – Taiwan, Argentina, South Africa and Thailand – that have only one ETF devoted to them, but somehow Colombia has two. We've seen this before in the ETF industry. Arguably, Russia didn't need a second ETF when the second one came along. Now there are four Russia-specific funds. Indonesia and Poland seemed like stretches for more than one ETF. Today, both countries are represented by two country-specific funds. In all three of those examples, funds tracking the same country from rival issuers (often iShares and Market Vectors) find a way to coexist and survive. That's a roundabout way of saying the Market Vectors Colombia ETF isn't a bad idea. It was probably just a tad premature. Time will tell if COLX can make inroads against GXG. If it wants to, the rookie Colombia ETF must do something about the big chasm in terms its performance compared to GXG's because that might be the biggest reason investors are staying away. Bull case: Latin America comes back into favor with investors, validating the existence of two Colombia-specific ETFs in the process. Bear case: Brazil ETFs continue to falter, which will keep investors from even glancing at South America's other ETF options.