How to Grab Fast-Growing Latin American Profits
Dec 12th 2012 5:55PM
Updated Dec 12th 2012 6:02PM
Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add exposure to Brazil, Mexico, Chile, and other Latin American companies to your portfolio, the iShares S&P Latin America 40 Index ETF could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The iShares ETF's expense ratio -- its annual fee -- is a relatively low 0.50%.
This ETF has performed reasonably well, lagging the world market over the past three years, but beating over the past five and trouncing it over the past 10. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
With a low turnover rate of 22%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
Why Latin America?
Diversification is an important part of a successful portfolio, and geographic diversification can help bolster it during times when the U.S. market heads south. Better still, many Latin American economies are growing faster than ours, offering plenty of stock appreciation potential.
More than a handful of Latin American companies had strong performances over the past year. Mexican cement giant Cemex roughly doubled in value, for example. In its last quarter, it reported revenue up just 2%, and much of that a result of price increases. Still, free cash flow roughly doubled, as the company refinances debt and sells some assets to reduce debt. Some expect the company to return to profitability next year.
Southern Copper gained 35%, recently hitting a 52-week high. Don't get too excited by its recent 29% dividend yield (yes, that's right) -- it reflects a one-time legal windfall that's being distributed to shareholders. (Its five-year average dividend yield is about 6%.) The company carries more debt than many peers, but it's aiming to boost its production by investing heavily in capital projects, and it may generate a lot of revenue in copper-hungry China. Some expect rising demand for copper to be paired with rising prices resulting from lower inventory levels, too. The stock recently got a thumbs-up from analysts at Citigroup .
Brazilian steel company Gerdau (NYSE: GGB) shrank by about 41%, but as Brazil builds for the 2016 Olympics and the 2014 World Cup, among many other projects, it's likely to enjoy increasing demand. Some analysts have downgraded it, citing disappointing profit margins and returns on equity.
Other companies didn't do as well last year but could see their fortunes change in the coming years. Brazil-based Vale , the world's second-largest mining company, shed 10%, but it has much to recommend it, such as its modest exposure to troubled Europe. It has been challenged by slowing growth in China and cyclical commodity prices, but its diversification helps. As Brazil's largest railroad operator, it's looking to bid for rights to many more miles.
The big picture
A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
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The article How to Grab Fast-Growing Latin American Profits originally appeared on Fool.com.Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of Cemex. The Motley Fool owns shares of Citigroup Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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