Rudy Martin produces the Latin Stock Investing Web site.
NEW YORK (
) -- Exchange-traded funds have been growing in popularity, and a number of these unique investment vehicles focus on Latin America.
Here's a look at some ETFs that focus on Latin America.
Global X/InterBolsa FTSE Colombia 20 ETF
, with a market capitalization of only a few million U.S. dollars, is the smallest ETF in the accompanying table.
It is fairly new, with an inception date in February 2009, and has a total expense ratio of 0.86% that is the highest of the diversified ETFs in the group. These factors combine to argue to hold off on consideration of this fund until it grows in size and hopefully reduces its expenses to shareholders. Its low market capitalization makes it difficult for arbitrageurs to keep its market price aligned with its net asset value per share.
Still, it is worth keeping track of. Colombia is one of a diminishing number of Latin American nations committed to constructive relations with the United States, despite the reluctance of Congress and the Obama administration to move ahead with a free-trade agreement with that country. It has been shedding its image as an area controlled by drug lords and is generally conservative and committed to capitalism.
Like all the funds on the list, GXG is a passively managed portfolio whose objective is to generally correspond to the price and yield performance, before fees and expenses, of the FTSE Colombia 20 Index. The underlying Index is free float adjusted, liquidity tested and market capitalization weighted and designed to measure broad based equity market performance in Colombia.
iShares MSCI All Peru Capped Index ETF
is only a few months old and focuses on a relatively small segment of the overall Latin American equity market. Its objective is to achieve price and yield performance that generally correspond with the MSCI Peru Capped Index. The index is sponsored by an organization that is independent of the fund and Barclays Global Fund Advisors. The index is a free float adjusted market capitalization gauge designed to measure performance of the broad Peru equity universe.
EPU is largely a resource play, with 66% of its holdings in materials stocks (mostly mining), 6% in financials and only 5% in industrials
iShares MSCI Brazil ETF
is the biggest fund in the adjoining table and invests in the most dynamic Latin American economy. It is also largely a resource and energy play, with 27% of its holdings in materials stocks and 26% in the energy sector. Financials make up 20% of its portfolio.
iShares Chile Investable Market Index Fund
focuses on one of the smaller Latin American markets, but one with occasionally interesting potential. Its objective is to generally achieveprice and yield performance corresponding to the
MSCI Chile Investable Market Index
. The index is a free-float, adjusted market capitalization gauge that is designed to measure the broad-based equity market performance in Chile.
ECH's portfolio is less a resource play and more a local economy exposure investment that some of the other Latin American ETFs. The fund is 31% invested in utility companies, 19% in materials and 19% in industrials.
iShares Mexico Investable Market Index Fund
aims for price and yield returns corresponding to publicly traded securities in the aggregate in the Mexican market, as represented by the MSCI Mexico Index, which consists primarily of stocks that are traded on the Mexican Stock Exchange.
Whereas some of the other Latin American ETFs are primarily resource and materials plays, EWW focuses on industrial and consumer companies, some of which have operations stretching well beyond the Mexican border. The ETF's well-diversified sector mix includes 39% exposure to telecom, 22% consumer staples, 12% consumer discretionary, 11% materials, 9% industrials, 7% financials.
iShares S&P Latin American 40 ETF
is a low-cost (0.40% total expense ratio) vehicle for broad exposure to major Latin American companies in the region's major economies. Its portfolio corresponds to the performance of companies in the Mexican and South American equity markets as represented by the S&P Latin America 40 Index. The index includes highly liquid securities from major economic sectors of the Mexican and South American equity markets.
The fund's portfolio includes 25% of holdings in materials providers, 20% in financials, 17% energy, 15% telecom and 12% consumer staples. Geographically, 60% of its holdings are Brazilian, 27% is Mexican and 10% is Chilean.
Market Vector Brazil Small Cap ETF
charges a relatively hefty total expense ratio of 0.73% to participate in its target subsector of the hot Brazilian market. Its objective is to replicate, as closely as possible, before fees and expenses, the price and yield performance of the
Market Vectors Brazil Small Cap Index
SPDR S&P Emerging Latin America ETF
, like ILF (see above), offers an opportunity to participate in a geographically and industrially diversified Latin American portfolio. Its investment objective is to replicate, as closely as possible, the total return performance of an equity index based upon the Latin American composite market before its fees and expenses.
The fund uses a passive management strategy designed to track the total-return performance of the S&P Citigroup BMI Latin America Index. The index is a market capitalization weighted index that defines and measures the investments in the universe of publicly traded companies domiciled in emerging Latin American markets.
GML's country mix and its sector percentages roughly parallel those of ILF (see above). But while the iShares S&P Latin American 40, as its name suggests, contains only a limited number of the largest regional stocks (recently it held only 35 stocks), GML's portfolio is more diversified, recently including just short of 100 holdings. The price of the diversification is a total expense ratio of 0.60% for holders of GML, 10 basis points more than ILF.
Geographically, GML's portfolio is 64% invested in Brazil, 21% in Mexico and 9% in Chile. Its sector mix is 25% materials, 17% financials, 17% energy, 12% consumer staples, 12% telecom and 6% consumer discretionary.
CurrencyShares Mexican Peso Trust
is set up to reflect the price in U.S. dollars of the Mexican peso. The shares are intended to provide institutional and retail investors with a simple cost effective means of gaining investment benefits similar to those of holding Mexican pesos. The fund is designed to track the price of the Mexican peso net of trust expenses, which are expected to be paid from interest earned on the deposited Mexican pesos
ProShares UltraShort MSCI Brazil
ProShares UltraShort MSCI Mexico
are for hedgers and speculators who need leveraged downside exposure to the respective markets of Brazil and Mexico.
While these funds are likely to match the inverse of twice the return of the target index during one given trading day, over time they are not likely to perform in such a manner. The costs of maintaining double-inverse postures as well as imperfections in the hedging process for exchange traded funds make these appropriate only for short-term hedging and speculation.
WisdomTree Dreyfus Brazilian Real Fund
seeks to achieve total returns reflective of both money market rates in Brazil available to foreign investors and changes in value of the Brazilian real relative to the U.S. dollar.
-- Written by Rudy Martin in Jupiter, Fla.
Rudy Martin is the former director of research for TheStreet.com Ratings. Earlier he worked 25 years in investment research and management positions with Fidelity Investments, Lincoln National, Dean Witter Reynolds and Transamerica Investments. He began his career as a securities investment analyst at Duff and Phelps where he published equity and fixed income securities investment recommendations. Martin holds a master's degree in finance from Kellogg Northwestern University.