Latin ETFs Deliver Heat Over Last Five Years

Over the last five years, Latin America’s exchange traded funds (ETFs) have shown they’ve got the moves.

What’s more, the region is exhibiting signs of being a reliable long-term sector, says Tom Sullivan for Barron’s. Latin America gets a special boost in the area of natural resources, since it’s known as a region rich in iron, copper and oil.

During the last five years, these ETFs and mutual funds have been the top performers, and gaining an average 45%. Last quarter alone they went up 8.4% compared to U.S. equity funds at 1%.

Aside from metals and oil, Latin economies also harbor financial services, technology, wine and seafood, adding diversity to the economy. Liberal political and economic policies have been implemented in some countries, helping to create a middle class that’s both making and consuming goods.

Although credit raters remain confident in the region, the area is plagued with instability. Argentina defaulted in 2001, Brazil defaulted in 1987 because of sovereign debt and Mexico needed a $40 billion stand-by loan from the U.S. in 1995 to avoid default.

Despite this, price-to-earnings ratios look healthy. Barron’s rated the top countries as Brazil, Mexico, Chile and Peru. In addition, the countries are isolated from the drops in the U.S. dollar because their capital markets allow for more issuance of local currency debt.

There are some skeptics out there, too, however. Some say the recent returns can’t be sustained and that they’re likely to slow down to more modest levels. They suggest investors look for broad market funds instead, which can be an option for investors who can’t decide which country to zero in on or just want to experience the region’s overall growth.

Top ETFs representing this region:

• iShares S&P Latin America 40 Index (ILF), up 1.2% year-to-date; up 42.9% over five years
• iShares MSCI Brazil (EWZ), down 1% year-to-date; up 51% over five years
• iShares MSCI Mexico (EWW), down 2.8% year-to-date; up 31.7% over five years
• iShares MSCI Chile (ECH), up 1.2% year-to-date; five-year annualized returns not available

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