To say that the current environment is a challenging one for investors is quite the understatement. With Europe teetering on the brink of a sovereign debt crisis, a “new normal” low growth environment in the U.S., and increasing anxiety over government policies in China, there are numerous potholes in the road ahead for many of the world’s largest economies.
Against this challenging backdrop, Latin America has emerged as an interesting investment opportunity. As home to many of the world’s most resource-rich nations, the region has a new-found importance to the global economy. A prediction from Spain’s Banco Santander last week that Brazil will account for the largest portion of the bank’s profit in the coming year highlighted the region’s emergence as a driver of global GDP growth.
In recent years, interest in emerging markets has surged as growth in the developed economies has ground to a halt. That trend has translated into a surge in assets in funds focusing on the BRIC economies and other Latin American markets. By far the largest ETF offering exposure to Latin America is the iShares MSCI Brazil Index Fund (NYSEARCA:EWZ), which has almost $10 billion in assets. EWZ tracks the MSCI Brazil Index, a benchmark comprised of about 75 of the largest and most liquid Brazilian equities. But there is a lot more to Latin American equity markets to Brazil, and there is a lot more to the Latin America Equities ETFdb Category than EWZ. Below, we profile five funds that present unique ways to access Latin America.
- iShares MSCI Chile Index Fund (NYSEARCA:ECH): This ETF tracks the MSCI Chile Investible Market Index, a benchmark that measures the performance of the Chilean equities market. ECH is the only ETF offering pure play exposure to Chile, the world’s largest producer of copper. The country’s impressive response to a devastating earthquake earlier this year highlighted the sound policy decisions made in recent years; rather than lavishly spending wealth accumulated during the copper boom, Chile padded its coffers, allowing the country to implement stimulus measures without risking insolvency. ECH charges an expense ratio of 0.63%.
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- iShares MSCI All Peru Capped Index Fund (NYSEARCA:EPU): This fund follows the performance of the MSCI Peru Capped Index, a benchmark comprised of about 30 of the largest stocks listed on Peruvian exchanges. The breakdown of EPU reflects the wealth of resources in Peru; the industrial sector accounts for 54% of EPU with Buenaventura Mining Company making up about 17% of assets. Peru’s industrial sector is expected to make investments of $4.6 billion in 2010, up 40% from the previous year. EPU also charges an expense ratio of .63%
- Global X Colombia 20 ETF (NYSEARCA:GXG): The ETF tracks the FTSE Colombia 20 Index, a market capitalization-weighted benchmark comprised of the 20 most liquid stocks in the Colombian market. Like many emerging markets ETFs, GXG has heavy weightings in the financial and energy sectors. GXG has been one of the top-performing equity ETFs in 2010, adding nearly 20% year-to-date.
- Emerging Global Advisors Brazil Infrastructure Index Fund (NYSEARCA:BRXX): This ETF is the only sector-specific Latin American ETF available to U.S. investors. BRXX tracks the INDXX Brazil Infrastructure Index, a free-float capitalization weighted benchmark that focuses on 30 stocks representative of Brazil’s infrastructure sector. With the 2016 Olympics and 2014 World Cup looming as opportunities for Brazil to showcase itself as a modern country on the global stage, the government is making a furious effort to enhance its roadways, utilities, and transport systems. Brazilian president Luiz Inacio Lula da Silva recently launched a massive $878 billion program to upgrade Brazil’s infrastructure, making BRXX an interesting option.
- Van Eck Latin America Small Cap ETF (NYSEARCA:LATM): While most Latin America ETFs are dominated by mega cap equities, this ETF focuses on small cap stocks. LATM tracks the Latin America Small Cap Index, a benchmark measuring the performance of small capitalization companies which are publicly traded and headquartered in Latin America or that generate the majority of their revenues in Latin America. LATM is heavily weighted by materials and consumer discretionary, a major distinction from most emerging markets ETFs that are tilted towards financials and energy.
Disclosure: No positions at time of writing.
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