Top Ranked Latin America ETF (ILF)

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January 18, 2013 4:59pm NYSE:ILF

latin americaEric Dutram: A sluggish recovery in the U.S. market, an impending debt ceiling fight and the never ending Euro-zone crisis have led investors to shift their focus from the developed economies to the emerging ones instead. This has proven to be a solid strategy in recent times,


as these markets have been surging higher well ahead of their developed market peers.

One such economy which appeals to investors in this turmoil is that of Latin America (Broad Latin America ETF Investing 101).

Of late the broad Latin American economy has been growing steadily in 2012 and is expected to post healthy growth going forward. According to a report from Morningstar, the International Monetary Fund’s (IMF) economic outlook for Latin America stands at a solid 3.8% for 2013, well ahead of many other regions.

A growing middle class exceeding almost 50 million has added to the economic expansion. Additionally, the region is commodity rich and the abundance of natural resources along with increasingly stable political systems should spur future growth in the region.

A nagging issue for the country is its dependence on export to the developed markets like the U.S. and Europe. The global turmoil affected exports which dropped from 22.3% in 2011 to only 1.6% this year. However, the unemployment level improved from 6.7% to 6.4% so the situation isn’t as gloomy as it might initially appear (Buy These ETFs to Profit from the Global Population Boom).

If we keep aside a level of uncertainty in the market, Latin America is poised for better growth going forward attributable to rising domestic demand, better employment levels and growth in the crucial banking sector.

With that being said, investor looking to tap the region in ETF form can invest in Zacks top ranked iShares Latin America 40 ETF (ILF – ETF report). ILF has a Zacks ETF Rank of 1 or Strong Buy and is expected to outperform its peers over the coming one year period

About the Zacks ETF Rank

The Zacks ETF Rank provides a recommendation for the ETF in the context of our outlook for the underlying industry, sector, style box, or asset class. Our proprietary methodology also takes into account the risk preferences of investors. ETFs are ranked on a scale of 1 (Strong Buy) to 5 (Strong Sell) while they also receive one of three risk ratings, namely, Low, Medium, or High.

The aim of our models is to select the best ETFs within each risk category. We assign each ETF one of five ranks within each risk bucket. Thus, the Zacks Rank reflects the expected return of an ETF relative to other products with a similar level of risk.

For investors seeking to apply this methodology to their portfolio in the Latin American ETF market, we have taken a closer look at the top ranked ILF below:

iShares Latin America 40 ETF (NYSEARCA:ILF)

Launched in October 2001, ILF is a passively managed exchange traded fund designed to track the holdings of the S&P Latin America 40 Index. The fund provides exposure to some of the largest and most liquid stocks in five Latin American markets, namely, Brazil, Mexico, Chile, Peru, and Colombia.

It is home to 43 securities and is highly dependent on the top 10 holdings for its performance as more than 60% of the asset base is invested in these 10. The Mexican telecom company America Movil (NYSE:AMX) has been assigned more than one-tenth of the entire portfolio, with Petrobras (NYSE:PBR), Vale, and Itau Unibanco taking the next three positions.

However, in terms of sector exposure, the fund has a more balanced approach. The highest weighting goes towards financials, while consumer staples, basic materials and energy companies also get major allocations.

For the different countries involved, the fund has a tilt towards Brazilian securities in which it invests more than 50% of the asset base. Mexico and Chile also get double-digit allocation in the fund while a very small portion has been assigned to Peru and Colombia. The fund charges a fee of 50 basis points annually, but with its top ranking

zacksWritten By Eric Dutram From Zacks Investment Research

In 1978, Len Zacks discovered the power of earnings estimates revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank, a peerless stock rating system whose Strong Buy recommendation has an average return of 26% per year.


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