ARGT - ARGT: Impressive Relative Strength Near All-Time Highs Attractive Valuation

2023-03-05 19:56:12 ET

Summary

• Foreign markets have seen a revival as the mega-cap U.S. growth trade wavers in the last year.
• While Europe and Asia catch the fanfare, one South American niche sports some of the best price action you'll find around the world.
• Argentina equities feature a decent valuation with strong momentum thus far in 2023.

International equities generally feature lower valuations than the U.S. stock market and many boast relative strength over the last several months. Even with a small snapback in the dollar lately, foreign markets are hanging in there well. One of the hottest spots is somewhere you might not expect – or even considered allocating capital: Argentina.

Massive Relative Strength in Argentina

According to the issuer , the Global X MSCI Argentina ETF ( ARGT ) seeks to provide investment results that correspond generally to the price and yield performance of the broad Argentina equity universe. The index ARGT tracks has interesting and notable constraints and requirements that impact its allocation. First, ARGT must hold a minimum of 25 securities and 20 issuers at construction and must restrict weights to meet concentration requirements to qualify as a regulated investment company ((RIC)). As such, the ETF’s top holding is capped at 25%.

ARGT has a track record spanning more than a decade and the fund features a tad lofty 0.59% annual expense ratio and has just $55 million in net assets as of March 2, 2023. Holding 25 equities, ARGT has a high 0.51% 30-day median bid/ask spread and pays a 1.8% yield using the 30-day SEC yield metric (dividends paid semi-annually). The weighted average market cap size of the portfolio positions is actually somewhat high at $13.9 billion, and Morningstar lists the P/E ratio at just above 14. ARGT is a volatile fund with an equity beta to the S&P 500 of 1.25 and it’s 38% more volatile than the MSCI EAFE Index.

Digging into the portfolio, ARGT plots in the large-cap growth quadrant of the Morningstar Style Box, unusual compared to other South American markets. With a yield near the S&P 500’s rate, there isn’t a high income stream from Argentine stocks and the quality of ARGT’s positions is low.

ARGT: Portfolio and Factor Profiles

The ETF’s top 10 positions make up 65% of the fund and turnover is not too high at 45%, per Morningstar. What makes ARGT different than many other Latin America funds is that MercadoLibre ( MELI ), a Consumer Discretionary sector stock, commands a quarter of the allocation. Back out that name, and the ETF is heavy in value and cyclical areas like Materials and Energy. Still, ARGT holders should keep close tabs on performance and fundamental conditions with MELI.

ARGT: Sector Allocations

The Technical Take

With a decent valuation but an elevated expense ratio, there are some negative aspects of ARGT, but the chart is the showcase. Notice in the graph below that the fund is holding near all-time highs. That contrasts with so many foreign ETFs that remain below early 2018 peaks. What’s ideal from a bullish perspective about recent price action is that a bull flag has emerged after ARGT broke a minor downtrend last year. So long as the $36 to $37 range holds, there is an upside measured move price objective to near $49 based on the length of the flagpole and the base of the flag.

Also take a look at the RSI momentum indicator at the top of the chart – it is holding an uptrend during this pullback off the $41.59 all-time high. Finally, while it’s hard to see on the long-term chart, there has been a major volume spike in 2023 as ARGT has rallied. That is a bullish confirmation of the price advance.

ARGT: Bull Flag Near At All-Time Highs

The Bottom Line

With impressive relative price strength and a solid valuation, I see more upside ahead for ARGT ETF. Investors should be careful when entering orders since there can be a wide bid/ask spread at times.

For further details see: