While the global economic picture may not be that bright, the
conditions tend to be very different when one takes a look at
specific nations. For this reason, a look to certain areas of the
world could lead to outperformance, especially in this uncertain
time where diversification is more necessary than ever.
Due to this market rockiness, investment in fast growing
emerging market economies has become a very popular tool among
many investors. Yet, when it comes to investment in emerging
market economies, investors usually look to the mega economies
like China or India. But beyond these, there are still many more
options existing for investors that can still provide great
exposure to developing nations.
In this article we would like to highlight the emerging market
of Latin America. Of late, the commodity rich region has been in
the limelight when it comes to investing in the emerging markets
Latin America ETFs: beyond Brazil
In Latin America investing, the first thought which comes to
mind is usually Brazil. In fact, half of the ETFs tracking Latin
America invest a major portion of their asset base in the large
South American nation.
However, this might mean that investors are overlooking
several other nations in the region, specifically those in the
Andean area, which have outperformed Brazil, but never receive
the same level of attention from investors (
Brazil ETFs: More Trouble On the Horizon?
This often overlooked region is composed of the fast-growing
economies of Peru, Colombia and Chile. Though these economies
have had a bad history, in recent times they have turned out to
be a relatively better option for ETF investors.
After all, these nations have higher GDP growth than Brazil
with moderate inflation levels, suggesting steady growth in the
near term (
Three Overlooked Emerging Market ETFs
). Additionally, they are commodity rich regions which add to
their advantage at a time when commodity prices are
Also, stable political situations and rising consumer market
make these destinations an ideal choice for investors seeking to
put in their money in this part of the world but beyond the
behemoth of Brazil (
Top Three Emerging Market Consumer ETFs
). Below we discuss the ETFs available in the market to play this
slice of the economy.
The Chilean economy is an intriguing choice for investors
seeking to invest in Latin America. Chile has turned out to be
one of the strongest economies outperforming Brazil and Argentina
Forget the BRIC ETFs, Focus on the PICKs
). The International Monetary Fund (IMF) expects the Chilean
economy to grow at the rate of 4.3% in 2012.
Chile is also known for its abundance in minerals and is the
largest producer and exporter of copper. The tie ups with Asian
economies may help the region to set off the losses incurred due
to the weak European market.
However, investors should note that after a strong recovery,
the growth momentum in Chile has been slow in recent times
attributable to the deepening global woes. Copper prices have
slowed down and unemployment level has seen an increase.
Despite some gloomy factors, the region remains an interesting
choice for investors. Investors seeking to tap this corner of the
market in an ETF form, the
iShares MSCI Chile Index Fund
) looks to be the top choice.
The product tracks the MSCI Chile Investable Market Index
which produces a fund that holds about 40 securities in its
basket. The fund appears to be concentrated in the top 10
holdings with asset investment of 62%.
Among sector allocation, Utilities, Industrials, Financials
and Materials are the top four choices for the fund with
double-digit allocation. The fund charge investors a fee of 59
basis points and generates a yield of 1.55% in the process.
Investors should note that Peru is also one of the interesting
options in the catalog of Latin America ETF investing. Recent
data shows that the Peruvian economy expanded at the rate of 5.3%
and, according to International Monetary Fund, the region is
expected to grow at the rate of 5.9% in 2012. The growth of the
economy is being driven by strong external and domestic demand.
Additionally, Peru is one of the largest producers of gold and
Peru ETF Investing 101
The recent downturn in the U.S. has impacted commodity prices
worldwide which also slowed down the growth of the Peruvian
economy. However, with the announcement of Q3 by the Fed,
commodity prices were on the rise once more, which once again
gave a boost to the economy (
Commodity ETFs in Focus as Fed Unleashes QE3
Investors seeking to tap this attractive economy in ETF form
could do so by investing in
iShares MSCI All Peru Capped ETF
). EPU is the only ETF offering a pure play in Peru. The fund
tracks the MSCI All Peru Capped Index and holds a very small
basket of 28 stocks. Materials and Financial stocks play a
dominant role in the holdings profile as the two sectors combine
to make up 77.86% of assets.
The top 10 holdings also take away a major chunk of the asset
base of $336.2 million. In this asset base, the top 10 holdings
get a share of more than 70%. The fund charges a fee of 59 basis
points from the investors and has a yield of 2.42% per year
The Colombian economy has also turned out to be extremely
popular when it comes to investing in the emerging markets of
Latin America. Colombia is a region which has immense unexploited
natural resources, especially in the areas of oil and coal. The
region also has close U.S. ties and a strong fiscal position.
Earlier, the country was politically not very stable but
things have changed and there has been a vast improvement.
Another factor which in the past led investors to stay away from
investing in this country is the historically high rate of
inflation. Fortunately, the scenario is different right now with
inflation well under control thanks to sound government policies
Colombia ETFs Head-to-Head
Investors seeking to invest in this part of the Latin American
region have two choices available, the
Global X FTSE Colombia 20 ETF
) and the
Market Vectors Colombia ETF
). Both these funds offer a pure play in the Colombian economy.
But investors should note that GXG was first implemented to tap
the economy and COLX was launched in 2011.
With that being said, GXG manages a somewhat higher asset base
with a higher trading volume compared to COLX. While GXG has an
advantage over AUM and volume, COLX has an edge in expenses and
boasts of a greater number of holdings.
COLX provides exposure to 27 Colombian stocks, 3 more than
GXG. COLX charges a fee of 75 basis points annually which is also
3 basis points lower than GXG. Financials, Energy and Materials
are the top three choices among sectors for both the fund.
Andean Broad Based
Investors who seek to cover the three emerging market through
one basket of stocks have
Global X FTSE Andean 40 ETF
) available. This ETF specializes in providing exposure to the
Andean economies instead of pure play in any single economy. This
produces a fund which tracks the FTSE Andean 40 Index and
provides exposure to 41 largest stocks from all the three Andean
nation-states, Chile, Peru and Colombia
Despite being the only ETF available for investors to have a
broad play in the Andean economies, the ETF does not seem to be
popular among investors as implied by its trading volume of just
500 shares a day. Additionally, since its inception, in early
2011, the fund has been able to accumulate AUM of just $8.7
From a country exposure perspective, Chile gets the first spot
in the list with a share of 39% while Colombia takes the second
position with 30% allocation. Peru holds the last position with a
share of 11%.
In terms of sector allocations, 76% of the fund is allocated
to these four sectors: Basic Materials and Financials each make
up about 24% of the fund while Energy (15%) and Utilities (13%)
round out the next two quarters of the total exposure
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GLBL-XF ANDN 40 (AND): ETF Research Reports
MKT VEC-COLUMB (COLX): ETF Research Reports
ISHARS-MSCI CHL (ECH): ETF Research Reports
ISHARS-MSCI PER (EPU): ETF Research Reports
GLBL-X/F COL 20 (GXG): ETF Research Reports
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