What’s In Your South America ETF?

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The opening up of international funds through ETFs and other investing tools has allowed for investors to build portfolios entirely out of funds from countries they may have never physically been to. This shift from domestic investing has been supplemented with ETFs specifically designed for niche markets such as Latin America, where developing markets mix together and create great opportunities for investors looking for something different [for ETF industry news, sign up for the free ETFdb Newsletter].  

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These Latin America ETFs can provide a great window into the economies of South and Central America, an area that has been on the rise over the last decade. One of the stars of the region is Brazil, which as a member of the BRICs emerging markets has become one of the most popular investment destinations in recent years. U.S. investors have tilted their portfolios more heavily towards these fast-growing emerging markets when the economic crisis slowed returns in developed markets. While Brazil has proven to be a strong investment in the past, many Latin American ETFs are dominated by Brazilian firms, leaving little to no room for the smaller markets like Chile, Peru or Columbia [see Latin America Centric ETFdb Portfolio].

There are now almost 20 ETFs that focus exclusively on this region of the world;  the charts below highlight the differences between two Latin American ETF strategies:

  • Latin America 40 Index Fund (ILF, A+)
  • FTSE Andean 40 ETF (AND, B)
Latin America at Large

One particular fund that lends itself perfectly to answering the age old question of broad-based versus country-specific exposure is ILF. This ETF offers exposure to Latin American equity markets by tracking a basket of companies from the nations of Mexico, Brazil, Argentina and Chile. By picking countries that have relatively more developed economies, the Latin America 40 Index Fund is one of the most stable choices for investing, but it may not bring in the returns of a true emerging economy ETF [also check out Visual Risk Analysis Of The Latin America 400 Index Fund (ILF)].

Focusing on Regions

While the various Latin America ETFs out there are generally impacted by the same macroeconomic factors, they are far from identical. Unlike ILF’s broad base, the FTSE Andean 40 ETF focuses on only 40 companies in three of the fastest growing South American markets; Chile, Peru and Columbia. This ETF’s exposure is much more specialized and risky, but it also comes with huge growth potential for investors willing to take a chance [Download Free Report: How To Buy The Right ETF Every Time].

Investors should always look into the geopolitical structure in each country and its past actions, as these aspects could be a powerful indicator of a company’s success in that region. [For more ETF analysis, make sure to sign up for our free ETF newsletter or try a free seven-day trial to ETFdb Pro.] Disclosure: No positions at time of writing.

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