Van Eck will launch a small-cap Latin American ETF in a direct response to the popularity and success of small-cap investing in general, as well as the performance of small-caps domiciled on the popular and growing continent.
Market Vectors Latin America Small-Cap Index (NYSEARCA:LATM) holds small-cap companies doing business in South America. Such companies help investors capture the success of smaller corporations doing business and being supported by the local economies of Latin America. As with other small-cap funds that have recently come to market, the timing may be just right: small-caps tend to outperform during periods of economic recovery.
The fund’s top weightings are clearly a play on Latin America’s biggest strengths: a growing middle class and vast natural resources. Materials make up 26.2% of the fund; consumer discretionary makes up 22.6%. Industrials follow at 14.2% and financials are 12.1%.
The top country in the fund is Brazil, with a 42.8% weighting. Mexico is 23%, Canada is 19.2% and Chile is 10%. Canada?! You read that right. The Canadian companies in the index still derive most of their revenue from the Latin American market, which accounts for the inclusion.
Paul Kiernan for The Wall Street Journal reports that Latin America’s economy is expected to grow 4.8% for 2010. Brazil is on track to be the largest and fastest growing economy, where growth is predicted to be 5%.
Facts about Latin America:
- Latin America’s GDP has grown at an average of 4.6% annually since 2005 and is expected to continue expanding at a rate that will exceed that of the Group of Seven (G-7) industrialized nations.
- Small-cap stocks in the Latin American region are well-positioned to take advantage of local economic trends such as growing household wealth and increases in consumer spending since many of these countries feature a fast-growing middle class and rising domestic consumption rates.
The fund will normally invest at least 80% of its total assets in shares that represent the index of small-cap companies. Companies in the index must have at least a $150 million market cap and meet certain liquidity requirements, as well. The expense ratio is 0.68%, but is capped at 0.63% until May 2011.