Visual Risk Analysis Of The Latin America 40 Index Fund (ILF)

by on March 29, 2013 | ETFs Mentioned:

With over 1,400 ETFs on the market and new products launching every month, some might find the sheer variety of options intimidating. When looking to diversify overseas the first question that stumps many investors is which approach to take; some prefer the simplicity that is associated with broad-based ETFs, while others may wish to take advantage of the targeted exposure offered through country-specific funds. [see 101 ETF Lessons Every Financial Advisor Should Learn].

How The Latin America ETF Stacks Up Against Country-Specific Funds

One particular fund that lends itself perfectly to answering the age old question of broad-based versus country-specific exposure is the iShares Latin America 40 Index Fund (ILF, A+). This ETF offers exposure to Latin American equity markets by tracking a basket of companies from the nations of Mexico, Brazil, Argentina and Chile [see Latin America Centric ETFdb Portfolio].

While the various Latin America ETFs out there are generally impacted by the same macroeconomic factors, they are far from identical. The chart below illustrates the differences between risk/return profiles among the biggest Latin American country-specific ETFs and the broad-based Latin America 40 Index Fund (ILF, A+) [see Ultimate Guide To Latin America ETFs].

Note that the risk/return profile is defined by a fund’s 200-day volatility and trailing one-year return, while the respective annual dividend yield of each ETF is represented by the size of each bubble:

  • Global X FTSE Argentina 20 ETF (ARGT, A-)
  • iShares MSCI Mexico Index Fund (EWW, A)
  • iShares MSCI Brazil Capped ETF (EWZ, A-)
  • iShares MSCI Chile Index Fund (ECH, C+)

Keep in mind that the above chart is based on trailing returns, and as such, its composition is bound to change over time. There’s no universally right choice from the above ETFs; for some, the broad-based approach offered through ILF makes sense, while risk-tolerant investors may opt for EWW in search of more lucrative returns, or they might bet on ARGT as a contrarian play. The takeaway here is to remember to take a good look under the hood before pulling the buy trigger as each product features a host of unique advantages and nuances.

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Disclosure: No positions at time of writing.