Latin American exchange traded funds combine two of the hottest buzzwords of recent years: emerging markets and low fees. But with the economic fluctuations of a number of big Latin American economies, any eager investors would do well to actively manage their own investments, focusing especially on the top-performing Latin American countries.
In recent years, the Latin American economy at-large has experienced highly volatile returns. As a result, most Latin America ETFs are down. The culprits range from recession to falling oil prices, political instability in various countries, and increasing pressure from floods of Venezuelan refugees that are overwhelming economies in nearby Colombia and Peru. Prospects are the worst in Latin America for Venezuela, which is plagued by falling oil prices and the country’s perennial struggle with an ineffective government which has caused shortages in food, medicine, and basic goods. Currently, there are 15 exchange traded funds that specialize in Latin America, according to the site ETF Database.
Biggest Latin American ETFs
The leading Latin ETF player, by far, is BlackRock’s iShares unit, which runs the largest funds specializing in Brazil, Peru, and Mexico, as well as the largest diversified fund, the iShares Standard & Poor’s Latin America 40 fund (ILF). Here are profiles of the five largest funds, according to ETF Database.
1. iShares MSCI Brazil Capped ETF (EWZ)
The largest Latin American ETF, iShares' MSCI Brazil Capped ETF (EWZ) is a pure play on Brazil—a trendy bet the last few years, but much less so now. While it boasts $4.9 billion in total assets, its expense ratio of 0.59% is higher than a comparable ETF based on the S&P 500. Since inception, the fund has reaped a 2.98% in returns, although recent years have shown this fund in the red with high volatility. While 32.17% of this fund is invested in the financial services industry, its largest holding is mining company Vale SA (VALE), which has been down the past four periods. It's followed by Itau Unibanco (ITUB), Banco Bradesco (BBD), B3 S.A. (B3SA3), and beer titan Ambev S.A. (ABEV) is in the red. Including their preferred shares, these companies account for over a third of the ETF’s assets.
2. iShares MSCI Mexico Capped ETF (EWW)
The second-largest Latin American ETF iShares MSCI Mexico Capped ETF (EWW) has $458.5 million under management and an expense ratio of 0.49%. Unlike the commodity-focused EWZ, Mexico’s top ETF focuses on telecommunications. More than 19% of its assets are in Carlos Slim’s America Movil (AMX), a wireless-communications giant whose shares have erased an early-2014 loss and are now up about 3.45% for the year. Despite a tough economy, local Coca-Cola bottler FEMSA (FMX), the #2 holding, is down by about 16%, but the third holding, Wal - Mart de Mexico (WMMVF), is up 5.17% in the past year. The fund has boasted 5.88% returns since inception. If you have your eyes set on Mexico, start with this ETF.
3. iShares Latin America 40 (ILF)
The largest Latin fund to be diversified across nations with 41 holdings, ILF has an expense ratio hovers around 0.48% and includes $786.5 million assets under management. It is designed to track S&P’s Latin America 40 Index, which covers equities in Brazil, Mexico, Argentina, and Chile. Five-year returns are down recently, but the fund still holds its own with a return of 5.87% since inception. iShares Latin America 40 has almost the same exact top five holdings as iShares MSCI Brazil Capped ETF (EWZ): Vale SA (VALE), Itau Unibanco (ITUB), Banco Bradesco (BBD), America Movil (AMX), and B3 S.A. (B3SA3).
4. iShares MSCI Chile Capped ETF (ECH)
This $312.1 million iShares MSCI Chile Capped ETF (ECH) has suffered due to tough years on Chile's economy, which has only lost money despite the generally positive perceived Chilean outlook. Its expense ratio is 0.59%. Its top five holdings, comprising about 67% of the ETF’s assets under management, include primarily Chilean banks and mining companies. Its five-year return as of March 23, 2020 was a negative 12.79%.
5. iShares MSCI Peru ETF (EPU)
Another iShares fund, its MSCI Peru ETF (EPU) has lost about 1.3% of its value this year and has an expense ratio of 0.59%. A relatively large fund at 92.9 million in total assets, its 12-month dividend yield is high at 3.16%. Despite a lot of economic volatility due to political instability, the fund has retained a return of about 0.76% since inception. Its top holdings are primarily comprised of banks and mining companies, including Credicorp Ltd. (BAP), the nation’s biggest bank and Southern Copper Corp. (SCCO).
The Bottom Line
ETFs offer a cheap way to get exposure to Latin America's most exciting investment locales. Choose carefully, and consider the differences between funds that have a greater focus a specific industry or country and those that are more diversified.