Exchange traded funds are a great way to tap into the economy
of any part of the world. Easily, this approach offers up a far
more diversified way to target stocks in a particular nation,
especially in emerging markets.
In particular, one region which always seems to be of interest
is Latin America. This area seems appropriate for those who have
a relatively long time horizon and an above-average risk appetite
(
Forget Argentina, Buy These Latin America ETFs
Instead
).
This has been especially true as of late as Latin America has
been a center of attraction for many investors attributable to
the growing economies of most countries in the area, along with a
bright outlook. According to a report from Morningstar, the IMF's
economic outlook for Latin America stands at 3.7% in 2012 and
4.1% in 2013. So, the economy of Latin America is poised for
positive growth going forward.
Countries within Latin America like Brazil, Mexico, Chile and
Peru are also rich in commodities and have experienced
outstanding growth over the past few years (
Peru ETF Investing 101
). These countries are expected to continue its economic
expansion provided no extraordinary situation arises like a
sudden fall in commodity prices. European debt woes and slower
growth in China may have an impact on the region's export as
these Latin American countries are major exporters of
commodities.
However, the recent Q3 announcement by the Fed had a positive
impact on commodities. These natural resources, which before the
QE announcement were either volatile or down, rallied on the
announcement, suggesting a favorable climate for a commodity
driven region like Latin America.
Another reason which can be cited for economic expansion in
Latin America is the growing consumer market. Latin America has
experienced a huge increase in middle class numbers as more than
50 million more middle class households were added to the ranks
in 2011 alone (
Top Commodity ETFs In This Uncertain Market
).
Thus, investors who are seeking other choices in
emerging market ETFs, apart from China or India, have the
emerging market of Latin America as a great option for ETF
investing (
Is ARGT A Better Latin America ETF Pick?
). For investors seeking to play this trend in ETF form, the
following series of Latin America ETFs could make for interesting
picks:
First Trust Latin America AlphaDEX Fund (
FLN
)
Launched in April 2011, First Trust Brazil AlphaDEX Fund (FLN)
is a passively managed ETF designed to track the performance of
the Defined Latin America Index, a benchmark dominated by the
stocks selected on the basis of the AlphaDEX screening
methodology. It appears as though this strategy has paid off in
the short term as FLN has been generating positive alpha thereby
beating the benchmark index.
The AlphaDEX methodology for selecting stocks uses both growth
and value factors for determination of the stocks to be included
in the fund. In this way, investors get a blend of the top rated
growth and value stocks in one fund. 48 stocks from Latin America
comprise the FLN holding list with a total asset base of $6.4
million.
The fund appears to be pretty spread out as it invests 38.4%
of its asset base in the top 10 holdings, which signifies that
concentration risk is low in the fund. Among sectors, Consumer
Staples, Materials, Industrials, Financials and Utilities enjoy
double-digit allocation while weightings in Information
Technology and Energy are light.
Among the Latin America emerging markets, Brazil enjoys the
maximum allocation in its fund (
Forget the BRIC ETFs, Focus on the PICKs
). The fund has allocated 70.1% to Brazil followed by Mexico, the
second largest economy of Latin America, which has been granted
15.6% of assets.
Among the rest only Chile gets double-digit allocation. The
fund charges a hefty fee of 81 basis points which falls on the
higher side of the category average.
MSCI Emerging Markets Latin America Index Fund
(
EEML
)
The MSCI Emerging Markets Latin America Index Fund is the new
entrant on the list of Latin America ETFs. The ETF seeks to
provide investment results that correspond generally to the price
and yield performance, before fees and expenses, of publicly
traded securities in the emerging market of Latin America, as
measured by the MSCI Emerging Markets Latin America Index.
Since it is a newly launched ETF, the fund has been able to
amass an asset base of just $4.9 million which it seeks to invest
in a large basket of 124 stocks. This asset base is mostly
invested in the large cap securities of the emerging market of
Latin America while the style favors growth stocks to value
stocks (
Emerging Market Small Cap ETFs: Freefall
Continues
).
The fund invests 41.3% of its asset in the top 10 holdings
which suggest that the fund is moderately concentrated in the
large cap equities. Additionally, Brazil occupies the top
position in the fund country exposure, so the ETF relies heavily
on Brazil to set the pace of the product.
Among the sectors that the fund is most concentrated in,
Financials and Materials hold the lion's share making up 41% of
the total investment. For the investment made in the ETF, the
investor pays an expense ratio of 49 basis points which is on the
lower side of the category average.
S&P Latin America 40 Index Fund (
ILF
)
S&P Latin America 40 Index Fund is one of the oldest and
the most popular ETFs, which gives exposure to the emerging
market economy of Latin America. The ETF seeks to provide
investment results that correspond generally to the price and
yield performance, before fees and expenses, of publicly traded
securities in the Mexican and South American equity markets as
represented by the Standard & Poor's Latin America 40
Index.
The product appears to be liquid as approximately 400,000
shares change hands on a daily basis and provides exposure mostly
to the large cap stocks. The fund invests its $1,636.6 million of
net assets in 41 stocks.
The fund appears to be highly concentrated in the large cap
equities as the allocation to the top 10 holdings stands at
62.7%. Among country exposure, the fund has a tilt towards
Brazilian securities, investing more than 50% of asset base while
Mexico takes the second position with asset allocation of
27.7%.
Among the sectors that the fund is most concentrated in,
Financials, Materials, Consumer Staples, Telecommunication and
Energy enjoy double-digit allocation. For the investment made in
the ETF, the investor pays an expense ratio of 50 basis
points.
SPDR S&P Emerging Latin America ETF (
GML
)
The SPDR S&P Emerging Latin America ETF seeks investment
results that generally correspond to the performance of the
S&P Latin America BMI Index.
GML provides broader exposure to the emerging market of Latin
America securities and holds a total of 135 stocks. GML has a
total asset base of $114.8 million of which 38.8% is invested in
the top 10 holdings suggesting that the fund has moderate
concentration in the top stocks (
Go Local With Emerging Market Bond ETFs
).
Among sectors, a maximum of 20.9% is invested in Financials,
19.9% in Materials, and 17.1% in Energy while the fund is light
on Health Care with just 0.16% of investment made in the sector.
For the country allocation, the two largest economies of Latin
America, Brazil and Mexico, get the top two spots. The fund
charges a fee of 59 basis points annually.
Market Vectors Latin America Small-Cap ETF (
LATM
)
Market Vectors Latin America Small-Cap ETF provides exposure
to the small cap equities of the emerging market of Latin America
and tracks the Market Vectors Latin America Small-Cap Index. The
fund holds a total of 153 small cap stocks and has a total asset
base of $13.8 million of which 20.7% is invested in the top 10
holdings.
So, the fund appears to be diversified with assets not just
concentrated in the top 10 but instead spread among other
companies beyond the list of top 10. Among the different sectors,
Materials and Consumer Discretionary occupy the top two positions
with 50.4% of investment made in these two categories (
Time for the Latin America Small Cap ETF?
).
Market Vectors Latin America Small-Cap ETF charges a fee of 63
basis points for the investment. Small cap companies are more
volatile than their large cap counterparts and may prove to be
weaker than large cap companies at times of global crisis.
Among country exposure, Brazil enjoys the maximum allocation
with Mexico and Chile also getting double-digit allocations in
the fund.
|
ETF
|
Focus
|
Exp. Ratio
|
Total Assets
|
No. of Holdings
|
% In Top 10
|
|
FLN
|
Large Cap
|
0.81%
|
$6.4 million
|
48
|
38.4%
|
|
EEML
|
Large Cap
|
0.49%
|
$4.9 million
|
134
|
41.3%
|
|
ILF
|
Large Cap
|
0.50%
|
$1.60 billion
|
41
|
62.7%
|
|
GML
|
Large Cap
|
0.59%
|
$114.8 million
|
135
|
38.8%
|
|
LATM
|
Small Cap
|
0.63%
|
$13.8 Million
|
153
|
20.7%
|
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ISHARS-MS EM LA (EEML): ETF Research Reports
FT-LAT AMER AD (FLN): ETF Research Reports
SPDR-SP EM LATN (GML): ETF Research Reports
ISHARS-LATIN 40 (ILF): ETF Research Reports
MKT VEC-LTN AMR (LATM): ETF Research Reports
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