While the correlations of various asset classes have increased significantly over the past decade, emerging market investing is nevertheless likely here to stay. Even if foreign market returns are now more correlated with U.S. returns, the higher growth of emerging markets is still appealing in its own right.For investors looking for a convenient vehicle which holds some of the largest and strongest names in Latin America, the iShares S&P Latin America 40 Index (ILF) may well be a worthwhile option to consider.

In A Nutshell

Launched in October of 2001, ILF is a traditional, passive index-based ETF. As the name suggests, this fund is designed to mimic the holdings of the S&P Latin America 40 Index. This index includes the most liquid stocks of large companies in Brazil, Chile, Colombia, Mexico and Peru. ILF's underlying portfolio is somewhat dynamic, as Colombian equities became eligible for the fund in August of 2011 after the S&P elevated the country's status from frontier market to emerging market.

What Makes ILF Unique

Although there are many emerging market ETPs targeting Latin America, most of the funds are country-specific. That being the case, ILF is unique in that it is one of the few funds to offer broad-based exposure to emerging Latin America. This ETF isalso the only fund to replicate the S&P Latin America 40 Index.

How It Fits

ILF could fit as either a core or complimentary holding in a relatively broad range of portfolios. Even conservative investors ought to have some emerging market exposure, and ILF is a convenient and reasonably-priced way to gain exposure to Latin American equities. Aggressive investors could look at this fund as more of a growth allocation and hold a larger percentage than more conservative investors primarily looking for the diversification angle.

ILF also may have some utility to traders looking to play the more volatile emerging markets. Correlations between individual markets in Latin America are relatively high, and so ILF could be of some use in executing bullish/bearish strategies .

What It'll Cost You

ILF's 0.50% expense ratio is fairly priced relative to other offerings in the Latin America space, which have expenses averaging0.64% with a range from 0.45% to 0.95% . This ETF is also available forcommissionfree trading to TD Ameritradeaccountholders

Under The Hood

This fund is designed to hold some of the largest and most liquid stocks in the five eligible Latin American markets. That said, it only holds 41 positions, so it is relatively concentrated; the top ten holdings represent almost two-thirds of total assets. Fund weightings are based on market cap, so the giant Mexican telecom company America Movil represents more than one-tenth of the entire portfolio, with Petrobras, Vale, and Itau Unibanco also accounting for major chunks .

Despite its rather shallow portfolio, the fund is surprisingly well-balanced across sectors. Just over one-fifth of the fund is invested in financials, while consumer staples and basic materials companies also receive major allocations. This ETF is less diversified on a per-country basis, though, as two countries comprise more than three-quarters of the fund's investment assets; Brazil takes the top allocation followed by Mexico.As Colombia and Peru are still quite small markets in terms of capitalization, they account for a fairly minimal portion in ILF.

Yield, Volatility and Performance

ILF features asemiannualdividend distribution. This ETFis likely to be more volatile than broad U.S. market indices, and it should offer a risk/risk profile similar to the popularMSCI Emerging Markets Index. From a performance perspective, ILF boasts a fairly impressive track record; this ETF shed a dismal 47.2% in 2008, but recovered strong in 2009 and 2010, gaining 91.2% and 15.5% respectively. This ETF lost 18.5% in 2011 as risk off sentiment drove many away from emerging markets in general.

Other Options

When it comes to diversified Latin American investment options, there aren't many funds that can go toe-to-toe with ILF. Investors may also wish to consider the following:

  • iShares MSCI Brazil Index Fund (EWZ): This is the biggest fund in the Latin America space, offering country-specific exposure to the largest economy in the region.
  • iShares MSCI Mexico Investable Market Index Fund (EWW): This is another popular country-specific ETF which targets Mexican securities.
  • iShares MSCI Chile Index Fund (ECH): This ETF offers exposure to what is largely considered to be the most stable economy in Latin America.
  • State Street SPDR S&P Emerging Latin America ETF (GML): This offering charges a slightly steeper expense ratio than ILF, however, it also boasts a deeper portfolio totaling over 130 securities.

Disclosure: Author owns shares of America Movil

Related Articles
  1. Stock Analysis

    3 Resilient Oil Stocks for a Down Market

    Stuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
  2. Economics

    Keep an Eye on These Emerging Economies

    Emerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
  3. Stock Analysis

    Is Pepsi (PEP) Still a Safe Bet?

    PepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
  4. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  5. Investing Basics

    Top Tips for Diversifying with Exotic Currencies

    Is there an opportunity in exotic currencies right now, or are you safer sticking to the major ones?
  6. Mutual Funds & ETFs

    The 3 Biggest Mutual Fund Companies in the US

    Compare and contrast the rise of America's big three institutional asset managers: BlackRock Funds, The Vanguard Group and State Street Global Advisors.
  7. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  8. Professionals

    5 Top-Rated Funds for Your Retirement Portfolio

    Mutual funds are a good choice for emotional investors. Here are five popular funds to consider.
  9. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  10. Investing News

    4 Value Stocks Worth Your Immediate Attention

    Here are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
  1. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  6. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!