The 2014 FIFA World Cup in Brazil is pumping up not only the adrenalin, but the Latin America economy as well. Investors are now turning fans of this lucrative emerging market space, which has rebounded strongly this year on low valuations and attractive stock prices.
Further, most Latin American countries are rich in natural resources, and have positive demographics with a younger population and rising middle class. These, along with the World Cup tournament, are resulting in solid foreign capital inflows into these countries. This is especially true as spectators are thronging to the event from all over the world, putting Latin America in the hot spot (read: Who Wins the 2014 World Cup of ETFs?).
However, growth in Latin America is expected to remain subdued at 2.5% for this year, according to IMF. This is largely due to the global slowdown, decline in global commodity prices, tight financing conditions and rising inflation. Among the countries in the region, economic growth in major commodity exporters – Argentina, Bolivia, Ecuador, Paraguay and Venezuela –is expected to drop to 2.8% in 2014 from about 6.0% in 2013. On the other hand, Brazil, Chile, Colombia, Mexico, Peru and Uruguay will likely grow 3.5% this year.
Despite the sluggish outlook, several ETFs have given a striking performance since the start of the World Cup on June 12. Further, gradual recovery in the U.S. economy is bolstering exports in these nations, thereby benefiting the region and related ETFs. Below, we have highlighted three ETFs that have benefited so far from the ongoing World Cup (see: all the Latin America ETFs here).
Global X FTSE Argentina 20 ETF (ARGT)
Though this fund has a Zacks ETF Rank of 5 or ‘Strong Sell’ rating, it gained over 5% over the past 10 days. This is especially true as Argentina won both matches that it has played so far, leading Group F.
The ETF provides exposure to the 20 largest and liquid companies that directly participate in the Argentine economy by tracking the FTSE Argentina 20 Index. The fund has amassed $10.3 million in its asset base and trades in average daily volume of more than 6,000 shares. The product charges 75 bps in fees and expenses (read: Falling Peso Undermines Argentina ETF).
Investors should note that the fund is highly concentrated on the top three firms, collectively making up for 41.2% of total assets. Further, energy takes the top spot in terms of sectors at 36%, followed by basic materials (16%) and financials (13%).
Market Vectors Colombia ETF (COLX)
This product has a Zacks ETF Rank of 4 or ‘Sell’ rating but has added about 4% in the last 10 trading sessions. Colombia also won both matches that it has played so far, leading the teams in the Group C.
The ETF follows the Market Vectors Colombia Index, holding 25 securities in its basket. The product is somewhat concentrated on its top 10 holdings at 56.4% of assets. From a sector look, more than one-fourth of the portfolio is dominated by financials while energy, materials, utilities and consumer staples round off to the top five with double-digit exposure (read: Inside the Recent Colombia ETF Surge).
The fund has amassed $4 million in its asset base while average daily volume is paltry at less than 2,000 shares. Expense ratio came in at 0.75%.
iShares MSCI Brazil Capped ETF (EWZ)
Though both Brazil and Mexico currently stand at No. 1 position in Group A with two matches won out of three, the Brazilian ETF is outpacing the Mexican counterparts by 10 bps.
EWZ tracks the MSCI Brazil 25/50 Index and is the largest and most popular ETF in the space with AUM of over $4.8 billion and average daily volume of more than 16.7 million shares. The ETF charges 61 bps in fees per year from investors. Holding 75 stocks in its basket, the fund is highly concentrated on its top 10 holdings with half of the portfolio invested in them.
In terms of industrial exposure, financials dominate the fund’s return at 30%, followed by consumer staples (16%), energy (14.1%) and materials (13.2%). The fund is up 0.4% since the start of the World Cup and has a Zacks ETF Rank of 5 (read: Forget the World Cup: The Real Reason Brazil ETFs Are in Focus).
While the trio has an unfavorable Zacks Rank for the long term, it has been crushing the broad Latin American funds by wide margins. This trend is likely to continue as the World Cup would propel these ETFs higher in the coming days, ignoring the negative economic fundamentals in the nations. Given this, investors seeking to play this near-term opportunity should definitely take a closer look to these funds.
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