Mining a Chilean ETF

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The iShares MSCI Chile Index Fund (NYSE: ECH) might look like just another single-country ETF. But unlike many of the new funds that came to market in 2007, this fund gives investors exposure to a commodity integral to growing economies -- copper -- as well as a vehicle to enter a lesser-known emerging market.

Fund facts

• Inception date: 11/12/07
• Expense ratio: 0.74%
• Net assets: $9.8 million

The fund tracks the MSCI Chile Index, comprising 30 stocks with an average market cap of $1.6 billion. The index has about half of its assets in utilities and industrial stocks, with another 17% in materials stocks, and 13% in consumer-related issues.

A look at Chile's economy
Well-known for its copper, Chile's economy has been anything but chilly lately. Nearly 45% of the country's GDP is linked to foreign trade, with an array of exports ranging from wine and wood to fresh fruit and seafood. Chile has an open economy and a central bank policy of austerity and expense reduction. With roughly 16 million people, Chile has close to a 100% literacy rate, and more than 16% of the population has a qualification from the nation's higher education system. The privatization of the national pension system has also encouraged domestic investment and a high savings rate.

Fund prospects
Despite the variety of Chile's economy, you don't have to be a mining prospector to see how heavily this fund's performance will depend on copper prices. Chile accounts for roughly one-third of the metal's global production. Yet unlike some other metals, copper has a wide base of customers, and it's used in major industries such as housing and transportation. Emerging-market economies like China and India, with their rapidly growing infrastructures, have helped fuel demand for copper, leading to price hikes in recent years. That has benefited copper companies around the world, including Freeport McMoRan (NYSE: FCX), Southern Copper (NYSE: PCU), and Rio Tinto (NYSE: RTP), and it may well benefit investors in this ETF as well.

The fund is part of the iShares family of funds, which includes a number of options for investors looking to target specific countries. At the moment iShares is the only ETF sponsor offering a Chile country fund.

Portfolio fit?
The fortunes of Chile and copper are intertwined. If the global economy slows down, demand for copper will likely decline, which could significantly hurt this Chile ETF. Nonetheless, investors looking to play the global commodities boom and emerging markets might want to allocate a small part of their overall portfolio to this unique fund.

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