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A man walks past displays on the floor of BOVESPA stock exchange in Sao Paulo September 16, 2008. (PAULO WHITAKER)
A man walks past displays on the floor of BOVESPA stock exchange in Sao Paulo September 16, 2008. (PAULO WHITAKER)

ETFs

Three of the best Latin American ETFs Add to ...

Rudy Martin writes for Latin Stock Investing.



ETFs are now an integral element in the investment landscape. Like all funds, they offer diversification. But unlike traditional open-end mutual funds, ETFs can be bought and sold throughout the trading day, not just as of their respective prices at 4 p.m. Eastern Standard Time, as with open-end funds.



In addition to potential tax benefits not available to other types of funds, ETFs tend to trade at market prices that adhere very closely to their individual net asset value. This is in sharp contrast to closed-end funds, whose prices frequently vary widely from their net asset values, thus exposing investors to risks of paying more than a fund's intrinsic value when making a purchase and/or receiving less than the fund's true underlying value when they sell.



We recently noted that investors have been favouring income-oriented Latin American stocks. Coupled with our research on Latin American demographic trends, which indicate significant growth in the number of consumers of telecommunications services, we arrive at our first recommendation.



SPDR S&P International Telecommunications Sector ETF

The fund seeks to provide investment results that, before fees and expenses, correspond generally to the S&P Developed Ex-US BMI Telecommunication Services Sector Index, a gauge that tracks the telecommunications sector of developed global markets outside the United States.



The fund's second largest holding, Spain-domiciled Telefonica SA, a member of our coverage list, makes up 13.6 per cent of the ETF's portfolio.



Global X FTSE Colombia 20 ETF

This ETF endeavours to match the price and dividend performance of the FTSE Colombia 20 Index, a market capitalization-weighted gauge of the 20 most liquid stocks in the Colombian market.



Financials, with a 38.7 per cent representation, make up the biggest slice of its portfolio. The energy sector represents 22.9 per cent of GXG's portfolio, followed by utilities at 14.6 per cent, utilities at 14.5 per cent, and materials at 10 per cent of the fund's investments. Investor expenses amount to 0.78 per cent of the fund's assets of $196-million (U.S.).



WisdomTree Dreyfus Brazilian Real Fund

This fund aspires to achieve total returns reflective of both money-market rates in Brazil available to foreign investors, and changes in value of the Brazilian real relative to the U.S. dollar.



The Fund seeks to achieve its objective by investing in high-quality United States money-market securities and entering into similar size forward currency contracts or swaps, which provide exposure economically similar to an investment in Brazilian money-market instruments. The expense ratio of the $452-million ETF currently stands at 0.45 per cent annually.



This has proved to be a winning strategy for BZF. While the United States has essentially ignored rising consumer prices and, instead, has kept short-term interest rates near zero and placed a lid on longer rates with the Fed's two "quantitative easing" programs, Brazil has resisted economic overheating by firming its rates.



Business has been humming in the Latin American nation, while the weak recovery in the U.S. economy has raised speculation of a double-dip recession. The result has been a rise of 5.7 per cent in the value of the Brazilian Real relative to the greenback.



That, coupled with the higher money market returns in Brazil versus the anemic returns available in the United States, has provided a double-barrelled boost to BZF. The volatile fund rewarded its holders with a total return of 10.4 per cent for the first half of 2011, and 34.8 per cent over the last 12 months.

 
  • IST-N
  • TEF-N
  • GXG-N
  • BZF-N
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