NEW YORK (
) -- Investors have another option when it comes to Latin America with the recent introduction of the
Market Vectors Latin America Small-Cap Index ETF
This follows the popular
Market Vectors Brazil Small Cap ETF
introduced last year.
Before this ETF, exposure to Latin America was mainly through a few large cap funds.
iShares S&P Latin America 40
Fidelity Latin America
SPDR S&P Latin America
At $4.5 billion in assets, FLATX is much larger than ILF, which had $2.7 billion on March 31, and both dwarf the less than $200 in GML
Of the four ETFs, LATM is the least overweight Brazil, with only 42% of assets in the country, just ahead of GML, with 44% of assets. Both ILF and FLATX have 62% of assets in Brazil. Adding in Mexico, the combined exposure to the two countries comes to more than 80% of ILF and FLATX, almost 80% of GML, but only 65% of LATM.
However, one-fifth of LATM's geographic exposure is in assets headquartered in Canada, meaning the Latin American country exposure is a bit underreported. For instance,
operates in Brazil, while Ventana Gold operates in Colombia
For sector exposure, every fund is heavy in materials. GML and ILF have 30% in the sector, while LATM has 26% and FLATX has about 20%. Of the three large cap funds, energy and financials also are heavily weighted in the portfolio. LATM is slightly underweighted in financials, while energy is a small position with about 5% of assets.
When it comes to consumer staples and consumer discretionary, the difference is wide. The three large cap funds have large exposure to consumer staples and small exposure to consumer discretionary. LATM inverts this, with 23% of assets (the second largest sector exposure) in consumer discretionary, and only 4% in consumer staples.
LATM also has double to triple the industrials exposure of the large cap ETFs, in addition to 6% of assets in health care and 5% in information technology. The large cap funds have negligible exposure in these two sectors, if there's any exposure at all.
A big difference between the funds also comes from the holdings within the sectors. Materials exposure in the large cap Latin America ETFs comes from large positions in
, the Brazilian iron ore miner, and steelmakers such as
Companhia Siderurgica Nacional
Materials exposure in LATM is led by the number-one holding in the fund,
Pan American Silver
Silver Standard Resources
, the No. 10 holding. The heavy silver exposure in the top ten is accompanied by
(AGIGF). Other holdings, such as the aforementioned Jaguar and Ventana, mean that the materials exposure is tilted towards precious metals.
LATM offers very favorable exposure within and across sectors. Where it has similarly large sector exposure in materials, it offers a very different mix of subsector exposure. Elsewhere, its sector exposure is completely different, with a heavier emphasis on consumer sectors, such as consumer discretionary and health care.
The question is, where does LATM fit in a portfolio? In the case of BRF versus the large cap
iShares MSCI Brazil ETF
, the differences are stark. EWZ is loaded with materials and energy, whereas BRF is loaded with consumer discretionary (31%). In LATM, the differences with the large cap Latin America funds are not as wide, and materials are still the largest sector.
Investors who want to keep it simple with broad exposure to Latin American small caps can pair LATM with ILF.
For investors who want Brazilian consumer exposure, or are more concerned with sector, rather than country, exposure, I recommend sticking with the existing
Small Cap Brazil
. For those looking for a way to add precious metals mining exposure, LATM may be a good choice for Latin American exposure.
Given the success of the
Brazil Small Cap ETF
, I expect volume will eventually be sufficient in LATM, but investors should still wait at least a few weeks for volume to pick up from the low initial levels.
-- Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion was long iShares MSCI Brazil ETF.
Don Dion is president and founder of
, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.