by Susan J. Aluise | March 22, 2012 8:40 am
China and India might be the first countries that come to mind when the topic turns to emerging-market opportunities, but some of the most intriguing plays now are just south of the border in Latin America.
Latin America is an exciting area for investors now because the region as a whole is experiencing economic expansion. Slower growth in trading partner economies like China is expected to have an impact on that rate of growth in the near future, so don’t expect the recent 5.4% GDP growth to continue.
Still, the Inter-American Development Bank last week forecast 3.6% growth in 2012, which is not too shabby. True, the region is less prepared today[1] to respond to another major meltdown like the 2007 global financial crisis. But barring any dramatic events — such as a collapse in commodity prices or hemorrhage in European banks — the region should continue to keep its growth rate on track.
Another plus for Latin American economies: a growing middle class. There were 56 million more middle-class households[2] in Latin America last year than there were in 1999, according to the United Nations Economic Commission for Latin America and the Caribbean. “This represents a formidable increase of the consumers’ market,” the group said.
Despite that opportunity, investing in Latin America is tricky. You have a lot of choices: different countries, different vertical markets and a plethora of individual stocks. One of the easiest ways to invest in these emerging markets is through exchange-traded funds. ETFs trade over a major exchange, they provide diversification among several stocks, and there are so many funds available that you should be able to find one to match your objectives.
However, you should note that emerging-market stocks or ETFs are best suited for investors who have a long time horizon and an appetite for above-average risk. But if that describes your investment mind-set, these four Latin American ETFs could make good additions to your portfolio.
iShares S&P Latin America 40 Index Fund (NYSE:ILF[3]): If you’re looking for diversification across many countries and sectors, ILF is a good choice. The ETF is tied to the S&P Latin America 40 Index, and major holdings include wireless provider America Movil (NYSE:AMX[4]), Brazilian energy giant Petrobas (NYSE:PBR[5]), iron ore producer Vale SA (NYSE:VALE[6]) and Wal-Mart de Mexico (PINK:WMMVY[7]). While ILF is down about 2% over the past 52 weeks, it has returned almost 13% year-to-date — and it even sports a nearly 3% dividend yield. ILF has about $2.1 billion in assets, costs about $48 per share and has a 0.5% expense ratio.
Global X Colombia ETF (NYSE:GXG[8]): Not too long ago, when you mentioned Colombia, all many people thought of was Juan Valdez and Pablo Escobar. No longer, now that the oil boom and heavy government infrastructure spending are fueling economic growth. Colombia’s GDP grew 5.6%[9] in the fourth quarter of last year, according to economists polled by Dow Jones. GXG, which has about $154 million in assets, is tied to the FTSE Colombia 20 Index and holdings include Ecopetrol (NYSE:EC[10]), Bancolombia (NYSE:CIB[11]), banking and telecom giant Grupo Aval Acciones y Valores and public utility company Isagen. GXG, which also has a dividend yield around 1%, is up 6.7% in the past 52 weeks and has gained more than 20% year-to-date. GXG runs around $21.50 per share, and its expense ratio is on the high side at nearly 0.8%.
IShares MSCI Brazil Small Cap Index Fund (NYSE:EWZS[12]): Economists and other prognosticators have panned Brazil of late, noting that the regional powerhouse has lost ground to Colombia, Chile and Peru. Still, 3.3% growth is still growth, and the country remains Latin America’s fastest-growing travel and tourism economy. EWZS, with just $65 million in assets, aims to replicate the performance of the MSCI Brazil Small Cap Index, and major holdings include bus manufacturer Marcopolo, utility company Copasa, real estate companies Gafisa (NYSE:GFA[13]) and BR Properties and private education company Kroton Educacional. A strong year-to-date performance of more than 24% has helped EWZS claw back to a slight gain in the past 52 weeks, and the fund also yields about 2% in dividends. EWZS costs around $27.50 per share and has a 0.6% expense ratio.
iShares MSCI Peru (NYSE:EPU[14]): Like its Andean neighbors Colombia and Chile, Peru’s economy has been growing at a fast clip: growth slowed to 5.4% in January[15]. The nation’s finance minister recently forecast 5.7% growth for the remainder of this year. Peru primarily is a metals and mining play — the country is a major gold, silver and copper producer. Materials account for more than half of EPU’s holdings, including Buenaventura (NYSE:BVN[16]), Southern Copper (NYSE:SCCO[17]) and Volcan. It also holds consumer products firm Alicorp and financial giant Credicorp (NYSE:BAP[18]). EPU, with about $500 million in assets, has gained about 4% in the past 52 years and is up 16% year-to-date. It sports a 2.3% dividend, costs just under $45 per share and has an expense ratio of 0.59%.
As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.
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