Latin America: A New Frontier for ETF Industry Growth

November 6th at 7:00am by Todd Shriber

Exchange traded funds providers may have found a new region in which to shop their wares: Latin America and it is not even the region’s largest economies, Brazil or Mexico, that is really helping facilitate ETF growth there.

Rather, it is Chile. Chile is most frequently known as the world’s largest copper producer to Western investors, but the country is home to less political instability and a more vibrant banking system than many of its LatAm counterparts. Copper, the primary source of government revenue, also backstops a tidy sovereign wealth fund that often goes unnoticed. [Chile ETF a Diversified Commodity Play]

Chile is helping ETF issuers grow in Latin America because the country uses  a private pension system that literally forces Chileans to be savers. Three decades ago, the country used a social security system similar to what is used in the U.S. Chile’s system went bankrupt.

After that, the government “redirected workers’ existing social security taxes to a new market-based system of investing choices that let workers make their own decisions in a program run by private companies,” according to Investor’s Business Daily. 

In other words, Chileans participate in a market-based pension plan, similar to the one some U.S. politicians have scared ordinary Americans out of thinking would be effective, with astounding results.  A recent “study shows the nation’s private retirement accounts provide workers pensions worth 87% of their salaries, 73% of that from profits on savings,” IBD reported.

Politics aside, Chile’s retirement system spells opportunity for ETF issuers. On Monday, WisdomTree (NasdaqGM: WETF), the fifth-largest U.S. ETF issuer, announced the Comision Clasificadora de Riesgo (CCR), the Chilean pension funds investment regulator, approved three additional WisdomTree ETFs for sale to Chilean pension funds.

Chileans saving for retirement can now invest in the WisdomTree SmallCap Earnings Fund (NYSEArca: EES), the WisdomTree MidCap Earnings Fund (NYSEArca: EZM) and the WisdomTree Japan SmallCap Dividend Fund (NYSEArca: DFJ).  That brings the number of WisdomTree ETFs available to Chilean pensioners to 13.

“Chile’s $163 billion pension pool is particularly attractive to U.S. ETF providers, because it is large, well established and allows a significant percentage of foreign investments. Workers there are required to contribute 10 percent of their monthly earnings to their individual accounts directed by pension managers,” reports Ashley Lau for Reuters.

Other ETF issuers with eyes on Chile as well as other LatAm America’s include BlackRock’s (NYSE: BLK) iShares, State Street’s (NYSE: STT) State Street Global Advisors and Vanguard, the three largest U.S. ETF issuers.