Global equity markets were on shaky ground during the early weeks of the pandemic in 2020, when investors evaluated risk from a very different perspective. As a result, shares of companies in many emerging markets, including Latin American equities, had a volatile year and were under pressure. For instance, the MSCI Latin America index lost 13.52% in 2020.
However, it's a different story in 2021. The region’s businesses seem to have been more resilient than anticipated. Therefore, today we discuss an exchange-traded fund (ETF) that could appeal to readers interested in the region.
Recent metrics show more than 650 million people live in Latin America, and the total population is expected to exceed 700 million by 2030. In comparison, China has around 1.4 billion residents, the European Union close to 450 million and the US about 330 million.
Among LatAm nations, Brazil has the highest population (about 212 million), followed by Mexico (129 million), Colombia (51 million) and Argentina (45 million). Gross domestic product (GDP) per capita is close to $9,000. By comparison, it is about $10,500 for China, $63,500 for the US, and $44,500 for the EU.
In June, S&P Global increased its “2021 GDP growth projections for the major economies in Latin America to 5.9% from 4.9%, due to better-than-expected performance of the services sectors.” However, it expects only 2.5% in 2022.
The region is well known for established companies in mining, agri-business and oil. But the tech sector, including financial technology and e-commerce companies are emerging rapidly.
According to the Association for Private Capital Investment in Latin America:
“Venture investment in the region topped US$4 billion for a second consecutive year, with a record 488 deals in 2020, record seed and early-stage investments in a number of major markets, and strong deal-making activity spilling into Q1 2021… Fintech remains the dominant theme, followed by e-commerce and prop-tech, with notable growth in pandemic-relevant sectors, including health tech and ed tech.”
With that information, here is our fund for today.
iShares Latin America 40 ETF
Current Price: $28.60
52-Week Range: $20.62 - $32.52
Dividend Yield: 2.26%
Expense Ratio: 0.48% per year
The iShares Latin America 40 ETF (NYSE:ILF) gives access to 40 large companies in Latin America. The leading 10 stocks account for 56% of net assets of $1.52 billion. Around 59% of the companies come from Brazil. Next in line are Mexico (24.22%) and Chile (6.45%).
ILF, which tracks the returns of the S&P Latin America 40 Index, started trading in October 2001. In terms of the sub-sectoral breakdown, the materials sector makes up the highest portion, with 26.67%, followed by the financials (26.20%) and consumer staples sectors (13.88%).
Brazil's mining giant Vale (NYSE:VALE), which is the world's largest producer of iron ore and nickel; Brazil-based Itau Unibanco Banco Holding (NYSE:ITUB), the largest banking institution in the country; and Brazilian oil and gas producer Petrobras (NYSE:PBR) lead the way, followed by Mexican telecommunications group America Movil (NYSE:AMX) and Wal Mart de Mexico (OTC:WMMVY).
Over the past year, the fund is up about 27%, but down about 1% year-to-date (YTD). ILF saw a 52-week high in early June. Trailing P/E and P/B ratios stand at 22.05x and 2.14x, respectively. Investors who believe in the region’s growth potential might consider buying the dips in the fund.
On a final note, investors who would like to invest in the two leading LatAm countries individually could research the following ETFs:
iShares MSCI Brazil ETF (NYSE:EWZ): up 15.8% over there past year, but down 4.0% YTD;
iShares MSCI Mexico ETF (NYSE:EWW): up 43.2% over there past year and up 15.1% YTD.