Buenos Aires — Latin American Exchange Traded Funds (ETFs) are a solid alternative for investors looking to diversify their portfolios into a region rich in emerging market growth, with abundant natural resources, and a rising middle class. Such investment in a wide array of sectors, companies and asset classes can boost the potential for income generation and currency diversification.
Whether its the world’s largest meat-packer (JBS), challenger bank (Nubank) or one of the globe’s leading e-commerce platforms (MercadoLibre), the region of some 650 million people is positioning itself as the land of opportunities this century.
To be sure, there are potential risks as ocurs with any investment. These include the region’s history of political and economic volatility, currency fluctuations, sensitivity to commodity prices, and varying regulatory standards. That’s why it becomes crucial for investors to thoroughly research the Latin American market, assess their own risk tolerance, and consider long-term objectives.
A Bloomberg Línea Guide to Investing In Latin America
What Are ETFs?
Exchange Traded Funds (ETFs) are investment funds that trade on stock exchanges, similar to stocks, allowing them to be bought and sold in the market. They are financial instruments designed to track specific indices, pool together commodity groups or sectors of the economy, and many other variations.
Top ETFs in Latin America
Among the myriad of ETFs available for emerging markets, several allow investors to track the performance of Latin American stocks. Three of them stand out due to their focus on the region’s largest economies:
- iShares MSCI Brazil (EWZ): Managed by BlackRock, it tracks an index composed of Brazilian equities.
- iShares MSCI Mexico ETF (EWW): Also managed by BlackRock, this ETF replicates a broad-based index of Mexican equities.
- iShares Latin America 40 ETF (ILF): This ETF aims to replicate the investment results of an index composed of the 40 most important equities from across Latin America.
YTD Performance
All three ETFs have risen in 2023. Up to Sept. 13, the EWZ was up 12.4% compared to December 31, 2022, while the EWW had risen 22.34% and the ILF 13.85%.
Despite this performance during the last eight months, the EWZ is still far from the highs it reached on May 20, 2008 (US$100.47). Today its price is US$31.45. On January 2, 2020, the Brazilian stock ETF reached US$48.41.
Meanwhile, the EWW peaked at US$76.71 on April 11, 2013 whereas today its price is US$60. However, when compared to recent years, the Mexican ETF is going through one of its best moments: it is 18% above where it was five years ago. Now, let’s take a closer look at the composition of these ETFs:
iShares MSCI Brazil (EWZ)
The EWZ invests in large and medium-sized companies in Brazil. It holds positions in 48 companies.
Sector allocation:
- Financials: 25.57%
- Energy: 19.05%
- Materials: 17.77%
- Industrials: 9.63%
- Services: 9.22%
- Consumer Staples: 8.08%
- Healthcare: 3%
- Consumer Discretionary: 2.54%
- Cash and Derivatives: 2.4%
- Communication: 2.08%
iShares MSCI Mexico ETF (EWW)
EWW has exposure to a wide range of Mexican companies. It holds positions in 44 companies.
Sector allocation:
- Consumer Staples: 31.33%
- Financials: 16.98%
- Communication: 15.10%
- Materials: 13.6%
- Industrials: 13.26%
- Real Estate: 7.58%
- Consumer Discretionary: 1.45%
- Healthcare: 0.44%
- Cash and Derivatives: 0.25%
iShares Latin America 40 ETF (ILF)
ILF is composed of shares from 42 Latin American companies, with a strong presence of Brazilian and Mexican companies.
Sector allocation:
- Financials: 31.12%
- Materials: 19.43%
- Consumer Staples: 14.78%
- Energy: 13.73%
- Industrials: 7.27%
- Communication: 5.09%
- Services: 2.97%
- Cash and Derivatives: 2.02%
- Consumer Discretionary: 1.5%
- Healthcare: 1.13%
- Real Estate: 0.96%
Brazilian and Mexican companies account for over 83% of the ETF, although there are also companies from other regions:
- Brazil: 56.19%
- Mexico: 26.86%
- Chile: 6.18%
- Peru: 3.58%
- United States: 3.5%
- Cash and Derivatives: 2.02%
- Colombia: 1.66%