Brazil dominates the economy of South America, with about half
the entire continent's GDP from a PPP perspective. The Brazilian
economy is suffering from slower growth and heightened inflation
over the past two years, and is currently one of the weakest
performing nations among the four BRIC (Brazil, Russia, India and
While inflation currently stands at 6.49%, many fear a rise in
the rate and a consequent stage of stagflation in the short term
Is It Time to Buy the Brazil ETF (EWZ)?
). Slower growth and higher inflation would generally result in a
strange situation in which measures taken to tame inflation might
In fact, the International Monetary Fund cut its 2013 growth
forecast for Brazil three times since July 2012. Now, Brazil is
expected to grow 3.0% in 2013 - a much lower rate than China and
a bit subdued from India's growth projections (read:
Is This China ETF About To Surge?
Better Plays on South America?
Yet, apart from this giant, investors still have a number of
solid options which could offer quality exposure to the growing
Latin American region. One such region is the countries in the
Andes Mountains, which outperformed Brazil but never received the
same level of attention from investors.
This, often overlooked, region comprises the fast-growing
economies of Peru, Colombia and Chile. Despite their bad history,
these have turned out to be a relatively better option for ETF
investors in recent times.
After all, these nations have higher GDP growth than Brazil
with moderate inflation levels, suggesting steady growth in the
near term (read:
3 Emerging Market ETFs Still Going Strong
). Additionally, these countries are commodity rich which is an
advantage at a time when commodity prices are rising.
Also, a stable political backdrop and a growing consumer
market make these destinations an ideal choice for investors
seeking to put in their money in this part of the world but
With that being said, a look at the top ranked ETF could be a
good choice to target the emerging Latin America market. One way
to find a top ranked ETF in the emerging market space is by using
the Zacks ETF Ranking system (read:
Zacks ETF Rank Guide
About the Zacks ETF Rank
The Zacks ETF Rank provides a recommendation for the ETF in
the context of our outlook for the underlying industry, sector,
style box, or asset class. Our proprietary methodology also takes
into account the risk preferences of investors.
are ranked on a scale of 1 (Strong Buy) to 5 (Strong Sell) while
they also receive one of three risk ratings, namely Low, Medium,
The aim of our models is to select the best ETFs within each
risk category. We assign each ETF one of five ranks within each
risk bucket. Thus, the Zacks Rank reflects the expected return of
an ETF relative to other products with a similar level of risk
(see more in the
For investors seeking to apply this methodology to their
portfolio, we have taken a closer look at the top ranked fund in
, which has a Zacks ETF Rank of 2 or Buy. This suggests that the
product would outperform its peers over the next one year.
Global X FTSE Andean 40 ETF (
This is the only way to target exposure to the three emerging
countries through one basket of stocks without other nations
being involved. The fund seeks to match the price and yield of
the FTSE Andean 40 Index, before fees and expenses.
The fund holds 44 largest stocks from all the three Andean
nations, Chile, Peru and Colombia. It is largely spread across
individual securities. The top three firms - Ecopetrol (
), Enersis (
) and Southern Copper (
) - comprise only 17.71% of the combined share in the
In terms of sector allocation, 27% of the fund is allocated to
financials and 21% to basic materials while energy (16%) and
utilities (15%) round out the next two spots in the basket.
From a country exposure perspective, Chile gets the first spot
in the list with a share of 37% while Colombia takes the second
position with 36% allocation. Peru holds the last position with a
share of 9% (read:
Andean ETFs: A Better Way to Play Emerging
Despite being the only ETF available for investors to make a
broad play in the Andean economies, the ETF is not popular among
investors as implied by its trading volume of just 7,000 shares a
day. Additionally, since its inception, in early 2011, the fund
has been able to accumulate AUM of just $9.9 million. The product
charges 72 bps in annual fees from investors.
Currently, the fund is underperforming, having lost about
9.81% in the year-to-date timeframe and 1.01% over the trailing
one-year period. But, the ETF yields a decent 1.97% in annual
From the above chart, the fund is in the oversold position as
indicated by lower RSI and Williams % R, signaling investors to
buy this Andean ETF. Though the product has been the worst
performer so far in the year, it is expected to move higher due
to the reversal signal in the trend.
Based on both the fundamentals and technical analysis, AND
could be a solid choice for investors who want to benefit from
the current underperformance of the fund, and are looking for a
rebound in South American investments in the second half of the
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GLBL-XF ANDN 40 (AND): ETF Research Reports
ECOPETROL- ADR (EC): Free Stock Analysis
ENERSIS S A ADR (ENI): Free Stock Analysis
ISHARS-BRAZIL (EWZ): ETF Research Reports
SOUTHERN COPPER (SCCO): Free Stock Analysis
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