Published November 01, 2012
With the soaring popularity of emerging markets ETFs, it is not unreasonable to assume that, at the very least, most investors know a couple of countries in Latin America can be accessed via ETFs. Plenty probably know there are a few Brazil ETFs on the market and the iShares MSCI Mexico Investable Market Index Fund (EWW) is far from anonymous.
Add up the assets under management totals for EWW, the iShares MSCI Brazil Index Fund (EWZ) and the iShares S&P Latin America 40 Index Fund (ILF) the number is north of $12.1 billion. With that, it might be difficult to fathom the concept of undiscovered LatAm ETFs, but these funds are out there.
Many fit the bill as small by assets and volume, but home to large returns. Some brokers will continue ignoring these ETFs. Smart investors will not.
First Trust Latin America AlphaDEX Fund (FLN) As is par for the course with many multi-country LatAm ETFs, the First Trust Latin America AlphaDEX Fund is heavily allocated to Brazil and Mexico. Latin America's two largest economies combine for 91 percent of this ETF's weight. What separates FLN from its rivals is the AlphaDEX methodology used to construct the underlying portfolios.
Using growth factors including 3-, 6- and 12-month price appreciation and value metrics such as book value to price, cash flow to price and return on assets, FLN avoids excessive weights to the largest Latin American stocks such as America Movil (AMX), Petrobras (PBR) and Vale (VALE).
Strikes against FLN include a small assets total ($6.3 million) and low volume. However, it should be noted the ETF is up 4.8 percent in the past 90 days compared to a two percent gain for ILF.
Market Vectors Latin America Small-Cap Index ETF (LATM) The Market Vectors Latin America Small-Cap Index ETF is a surprising addition to this list given the soaring popularity of small-cap emerging markets ETFs in recent years. LATM is now 31 months old and is neither large by assets ($13.8 million) nor frequently mentioned in the mainstream financial press.
LATM's name is deceiving as 62 percent of its weight is allocated to stocks with market values ranging from $1 billion to $5 billion, implying the fund has plenty of mid-cap exposure. Sub-$1 billion firms represent the remaining 38 percent.
Materials names are the largest sector weight at 28.4 percent, but combine discretionary and staples stocks and that number is 27.6 percent. That indicates LATM gives investors some leverage to the emerging markets consumer theme. Year-to-date, LATM has outperformed the popular Market Vectors Brazil Small-Cap ETF by nearly 300 basis points.
iShares MSCI Emerging Markets Latin America Index Fund (EEML) The iShares MSCI Emerging Markets Latin America Index Fund debuted in January and on the surface, this fund appears quite similar to its cousin ILF. America Movil, Petrobras and Vale combine for about 24 percent of EEML's weight. That trio represents about 31 percent of ILF.
There are other slight differences. EEML has an expense ratio of 0.49 percent compared to 0.5 percent for ILF. The former holds three times as many stocks as the latter. EEML's price-to-earnings ratio of 19.19 and price-to-book ratio of 3.6 are just below the the comparable metrics for ILF.
The rub is that EEML does not get around to trading every day. In fact, the last time the ETF traded was October 26. On the other hand, EEML has outpaced ILF by almost 140 basis points in the past three months.
For more on forgotten LatAm ETFs, click here.
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