ARGT: Pro-Capitalist Reforms Spark A Major Rally In Argentina Equities

A wave of capitalism has swept through Argentina. Optimism runs high as the country’s newly elected president takes aim at ditching policies that prevent the privatization of companies currently operated by the South American nation’s government. Investors have rejoiced in the past year. The Global X MSCI Argentina ETF (NYSEARCA:ARGT) is up 58%, dividends included, over the past 12 months.

I reiterate a buy rating on ARGT. Given high momentum and bullish seasonal trends ahead, not to mention exposure to one surging sector, sticking with the investment appears favorable in my view. I will, however, note a key level on the chart to monitor from a risk management perspective.

ARGT Is the Top Country ETF YoY

According to the issuer, 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%.

Currently, ranked No. 1 out of 2435 in Seeking Alpha’s Quant Ranking system, the ETF’s assets under management has swelled from just $55 million in March last year to more than $275 million as of May 8, 2024. Share-price momentum has been stellar since early November 2023 while its 0.59% annual expense ratio is not all that high considering the niche exposure the fund offers investors.

ARGT does not pay a high yield, however, as the payout rate is just 1.3%, close to that of the S&P 500. The ETF is not for the risk-averse, considering an elevated standard deviation in the last year and ARGT’s concentrated portfolio. But liquidity metrics are decent given volume that has been on the rise lately, though I must caution prospective investors that the fund’s 30-day median bid/ask spread is very high at 0.41%, so using limit orders during the trading day is probably a prudent strategy.

ARGT’s allocation is spread across the style box. While 29% of the portfolio is considered large-cap growth, more than half of ARGT is in the mid-cap size. Moreover, 17% of exposure is considered small-cap. In a way, that offers some diversification, but it also introduces risk, particularly when markets turn volatile.

One of the primary reasons why I still like ARGT today is that its price-to-earnings ratio is low, at 10.2x. Contrast that to my previous analysis, in March 2023, when the P/E was about 14x. So, it appears that earnings growth has actually outpaced the valuation change.

ARGT: Portfolio & Factor Profiles

Looking closer at its holdings, ARGT doesn’t have any exposure to the Information Technology sector. Furthermore, Utilities is about 9% of the portfolio – the strongest sector around the world in the past month. Financials and Energy, two other value areas, are significant overweights compared to the US stock market. Overall, the four biggest holdings account for a high 47% of the fund.

ARGT: Holdings & Dividend Information

Another reason not to cry over ARGT? Bullish seasonal trends are ongoing. The April through July stretch is the best time of year, so the current streak of momentum could keep up if historical tendencies are a guide.

ARGT: Bullish Seasonal Trends Through July

The Technical Take

With a low valuation and bullish seasonals, ARGT’s technical chart is one to behold. In March last year, I was watching the mid to high $30s for support. While the fund dipped to about $36, an uptrend was firmly in place following an upside breakout from key resistance in the $37 to $38 area. The long-term 200-day moving average remains upward sloping while the RSI momentum oscillator gauge at the top of the graph has reached overbought levels, though technicians know that is not necessarily a bearish reversal sign.

Also take a look at how volume has really come into the ETF just in the last few weeks. That comes after a volume spurt at the end of 2023. To me, it’s a sign that there has been possible bullish accumulation by investors. I do concede that the fund is now $15 above its 200dma, and I see support in the $53 to $55 range.

Overall, the trend is positive, and buying on a pullback to the mid-$50s would be a risk-focused way to play it.

ARGT: Big-Volume Rally, Rising 200dma Following the Breakout in Early 2023

The Bottom Line

I reiterate a buy rating on ARGT. The Argentina country ETF has a low earnings multiple with bullish seasonal trends. Share-price momentum is very strong as volume continues to run high.