Exchange Traded Funds and Latin America

by Kristina on August 18, 2011 · 1 comment

Good Morning DINKS.  Today we are discussing a popular investment option that may sometimes be overlooked by investors. Exchange Traded Funds can add diversification to an investment portfolio as well as give us exposure to Foreign or Emerging Markets.

What is an ETF?

An Exchange Traded Fund is the perfect balance between a Stock and a Mutual Fund.  Exchange Traded Funds offer investment diversification just like a Mutual Fund, but they can be traded throughout the business day just like a Stock.  An Exchange Traded Fund is offered through some Financial Institutions as well as Discount Brokerage Firms and Mutual Fund Companies.

Not so long ago our friend James made a comment on our Investing in Foreign Markets post about using ETFs as an efficient way to gain foreign exposure. I couldn’t agree more, and neither could The Globe and Mail.

When we invest in Foreign Markets and Emerging Markets there are added risks involved such as interest rate risk, and currency exchange risk which is the change in the value of the US Dollar versus the foreign currency.

If ETFs are too risky of an investment for your investor profile we can also achieve Foreign Market Exposure through Fixed Income Investments. I currently hold a Foreign Bond Mutual Fund in one of my Retirement Portfolios.  It gives me exposure to Foreign and Emerging Markets without the risk of investing in Equities.

Here are 3 Latin American ETFs to keep on our watch list according to The Globe and Mail:

  1. SPDR S&P International Telecommunications Sector ETF — This Exchange Traded Fund follows an index that tracks the telecommunications sector of developed global markets outside the United States. This ETFs second largest holding is the Spain-domiciled Telefonica which makes up 13.6% of this ETF’s portfolio.
  2. Global X FTSE Colombia 20 ETF This ETF follows a Colombian Stock Index, which holds 20 of the most liquid stocks in the Colombian market. The Financial Sector accounts for almost 39% of this Exchange Traded Fund, with the Energy Sector coming in a close second with almost 23% of the fund’s holdings. Utilities and Materials are the other two top holdings in this ETF.  This Colombia based ETF has current assets of over $195 million (U.S.).
  3. Wisdom Tree Dreyfus Brazilian Real FundThis ETF follows both the Brazilian money-market rates as well as the value of the Brazilian real return relative to the U.S. dollar. This ETF has total current assets of over $450 million US Dollars. This Wisdom Tree Exchange Traded Fund achieves to invest in high-quality United States money-market securities and enters into forward currency contracts.  Unlike the US, Brazil has resisted economic overheating by firming its interest rates. Therefore, Brazil can be a very tempting investment for foreign investors.  Brazil has a very strong economy and it is known as one of the major emerging markets to watch.

Photo by SFMission


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