A financial firm named Teucrium has submitted a request to the Securities and Exchange Commission (SEC) for approval of what would be the inaugural investment fund focused on companies operating in Venezuela. This initiative arrives at a time of significant political transformation in the South American country.
The exchange-traded fund (ETF) sector currently oversees approximately $13.6 trillion in assets across nearly 5,000 distinct products. Teucrium”s proposed fund, dubbed the Venezuela Exposure ETF, aims to track an index of businesses that either maintain over half of their assets within Venezuela or derive more than 50 percent of their revenue from operations in the nation.
This means that the fund will not solely invest in stocks listed on the Venezuelan exchange; it will also encompass firms that are heavily engaged in Venezuelan markets. The timing of this filing is particularly notable, as it follows a covert operation by the United States to oust Venezuelan President Nicolas Maduro from power.
If the SEC grants approval, this ETF would break new ground. While there are several funds that currently hold Venezuelan government debt, research from Bloomberg Intelligence indicates that no existing ETFs provide investors direct access to Venezuela”s stock market, which is characterized by limited trading activity.
Following the political upheaval, the Caracas Stock Exchange experienced a remarkable surge, jumping 16.45 percent on a recent Monday, reinforcing the notion that these developments are influencing market dynamics. Eric Balchunas, an ETF analyst at Bloomberg Intelligence, articulated that while there are many uncertainties regarding Venezuela”s future governance and the complexities of investing in such a frontier market, the initiative reflects the ETF industry”s opportunistic nature in capitalizing on fleeting moments.
Moreover, the removal of Maduro has led to a notable increase in Venezuela”s bond market, prompting long-term creditors to speculate about potential debt restructuring negotiations. Venezuela has not made debt payments in about eight years, and discussions surrounding restructuring have been nearly non-existent due to U.S. sanctions.
This political shift has positively affected the limited number of ETFs that hold Venezuelan debt. For instance, the Virtus Stone Harbor Emerging Markets High Yield Bond ETF, known by its ticker VEMY, has begun increasing its holdings in Venezuelan bonds over the past year. According to Jim Craige, the Chief Investment Officer at Stone Harbor Investment Partners, there is optimism that a debt restructuring deal may materialize within the next 18 to 24 months.
Despite the positive sentiment regarding Venezuelan debt, Balchunas expressed skepticism about the potential customer base for a Venezuelan stock ETF, suggesting it may be limited. However, it represents a unique and largely unexplored opportunity for firms within the competitive ETF landscape. Todd Sohn noted that the emergence of such opportunities often coincides with specific events or catalysts that reveal new investment possibilities.
As the situation develops, the financial community will be closely monitoring the SEC”s decision regarding the approval of the Venezuela Exposure ETF and its implications for both investors and the broader market.
