ARGT - ARGT: Argentina Shows Meaningful Potential

2023-06-30 13:08:33 ET

Summary

• Argentina, a South American economic powerhouse, stands tall as one of the G-20 economies.
• Since its inception in 2011, the Global X MSCI Argentina ETF has appreciated by 22.6% on a YTD basis and has compounded at an annualized +3.4% rate in market price and NAV terms.
• The potential for a more market-friendly government and successful reforms could significantly improve the operating backdrop for Argentine corporates.

One door is shut, but a thousand are open. - Argentine Proverb.

Argentina, a South American economic powerhouse, stands tall as one of the G-20 economies. Renowned for its abundant natural resources, robust agricultural sector, and highly educated populace, Argentina holds the title of having the highest GDP per capita in its region. Is it worth gaining exposure in your portfolio as AI (QQQ) mania runs wild?

Argentina's Economic Backbone: Key Industries

Argentina's economy is largely recognized for its prowess in several key sectors:

1. Agriculture: The country is a leading producer of beef, fruits, vegetables, wheat, and cattle.
2. Natural Resources and Mining: Argentina is rich in resources such as coal, gold, copper, zinc, magnesium, uranium, and silver.
3. Energy: The country is a major player in the oil and petroleum industry, and also produces significant amounts of natural gas and electricity.
4. Manufacturing: This sector includes food processing, chemicals and pharmaceuticals, auto parts, iron and steel, industrial machinery, textiles, forestry products, cement, and tobacco.

Spotlight on Global X MSCI Argentina ETF (ARGT)

Listed on the NYSEArca, the Global X MSCI Argentina ETF seeks to track the total return of the MSCI All Argentina 25/50 Index. This index comprises a select group of at least 25 constituents of the Argentina equity universe. As of the time of writing, the exchange-traded fund, or ETF, held ~$50m of net assets and charged a 0.6% expense ratio, providing a cost-effective option for U.S. investors looking to access Argentine equities.

ARGT Sector and Stock Allocation

The fund is spread across 26 holdings, with Consumer Discretionary forming the largest sector contribution at 29.8%, followed by Consumer Staples (15.8%), and Materials (13.9%). Financials (12.3%), Energy (11.3%), and Utilities (10.1%) also contribute over 10% to the fund. The top five sectors account for ~83% of the total portfolio, making ARGT one of the more top-heavy single-country ETFs.

The fund's largest holding is the online marketplace MercadoLibre (MELI), which makes up 23.3% of net assets. Other key holdings include state-owned energy company YPF SA (6.6%) and independent energy company Pampa Energia S.A. (5.8%). Financial services company Grupo Financiero Galicia (5.5%) and fast food restaurant chain operator Arcos Dorados Holdings (5.1%) are other notable holdings. In total, the five largest holdings contribute ~46% of the overall portfolio, indicating a relatively concentrated ETF from a single-stock perspective.

ARGT Performance Over the Years

Since its inception in 2011, the ETF has appreciated by 22.6% on a YTD basis and has compounded at an annualized +3.4% rate in market price and NAV terms. The ETF's performance reflects Argentina's macroeconomic volatility and financial difficulties over the past decade. It has compounded at an impressive +9.3% pace over a ten-year period.

ARGT: A Promising Investment Amidst Argentina's Economic Turbulence

The potential for a more market-friendly government and successful reforms could significantly improve the operating backdrop for Argentine corporates. While ARGT has seen a rally in the YTD period, the valuations still trade below their underlying earnings growth potential, making the ETF an attractive investment for those willing to weather the volatility.

Finally, Argentina's equity market, despite its turbulent past, is poised to offer promising returns in the future. Investors willing to navigate the Argentina volatility in the short term may find themselves well-positioned to capitalize on the potential growth in the long term with Global X MSCI Argentina ETF.

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