Under The Hood: Doing It For Diego

Most ETF investors now know that Brazil is South America's largest economy, but the popularity of ETFs tracking South American nations can be deceiving. For example, a lot of folks would probably guess that the second-largest South American economy is Chile. Or maybe Colombia. Peru might even garner a few guesses because the iShares MSCI All Peru Capped Index Fund (NYSE: EPU) has an impressive $435.3 million in assets under management.

Actually, all those guesses are incorrect. Argentina is the second-largest South American economy, yet a lot of investors may not know about the Global X FTSE Argentina 20 ETF (NYSE: ARGT), the only ETF devoted to Argentina.

At ten months old, ARGT is home to almost $4 million in AUM, but the fund has gotten off to a rough start losing 25% since its March 2011 debut. That's not a shock. Last year was dreadful for emerging markets ETFs, new and old, and ARGT's combined allocation of over 46% to materials and financials certainly didn't help matters.

There are political risks associated with investing in Argentina and if inflation in places like Brazil and India is too much to stomach, then stay away from Argentina because “hyperinflation” is the most applicable term to be used here.

So why even bother with ARGT? Well, the ETF could easily prove to be better than advertised. Oil services firm Tenaris (NYSE: TS), while not an Argentine company, accounts for 22% of ARGT's weight, and the stock could be boosted this year by increased demand for its pipes and rods.

ARGT is also a play on the Latin America consumer story. MercadoLibre (Nasdaq: MELI), 8.7% of the ETF's weight, has been on fire in recent months, and Arcos Dorados (Nasdaq: ARCO), another 8.4% of ARGT's lineup, is more than just Argentina. The company operates McDonald's (NYSE: MCD) franchises throughout the Caribbean and Latin America.

For those that need more convincing that Argentina and ARGT are worth a look, it's worth noting that in a recent interview with Bloomberg Templeton's Mark Mobius, a famed emerging markets investor, said Argentine companies are “cheap” and that “we're looking closely.”

At just over $11, consider ARGT a no-expiration call option on a potential rebound in Argentine equities. Maybe, just maybe ARGT will be touched by the “hand of God.” Either way, Diego Maradona would probably approve of buying a few shares of ARGT.