ETF Trends
ETF Trends
  • Latin America’s rebounding equity markets is luring some investors back to the ETFs that track the region
  • iShares Latin American 40 ETF (NYSEArca: ILF) is breaking out of that slumber with a year-to-date gain of nearly 19%
  • iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) was in steep trouble, but that ETF has snapped back in significant fashion this year as well

The iShares Latin American 40 ETF (NYSEArca: ILF), which has been mired in a multi-year slump, is breaking out of that slumber with a year-to-date gain of nearly 19% thanks in large part to a resurgent Brazilian and Mexican stocks.

Latin America’s rebounding equity markets is luring some investors back to the exchange traded funds that track the region. As an oil exporter, Mexico’s currency has been hit by the falling crude oil prices – ETF investors should keep in mind that while Mexico has a large oil industry, none of the country-specific ETFs include exposure to the sector.

Heading to this year, the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) was in steep trouble, but that ETF has snapped back in significant fashion this year as well. Earlier this month, Brazilian shares jumped as many traders believed the country is moving past a political gridlock that could lead to changes in the government and potentially kick-start the stagnate economy, Bloomberg reported.

The Brazilian rally went into high gear after former President Luiz Inacio Lula da Silva was detained, adding to speculation that support will grow to impeach his successor, President Dilma Rousseff. Brazil and Mexico are Latin America’s two largest economies, meaning strength in those equity markets can lure investors back to the region’s ETFs.

“This week, EM Asia and EMEA regional funds reported outflows of $340 million and $30 million, respectively. Dedicated EM ETF funds reported inflows of $1.93 billion, while non-ETF/active funds reported outflows of $550 million in the current week. Dedicated EM non-ETF/active funds have reported outflows continuously since May 2015,” according to a Morgan Stanley note posted by Dimitra DeFotis of Barron’s. “At the country level in EM (aggregate equity flows from all funds, global + EM dedicated funds), Colombia, Chile and Brazil reported the largest inflows relative to assets under management this week. Korea was the only country this week to report outflows relative to its assets under management.”

Bolstered by a rebounding currency and commodities prices, EWZ is higher by almost 26% year-to-date. The move higher by Brazilian stocks has also been aided by the country’s corruption crackdown. Earlier this month, Brazilian shares jumped as many traders believed the country is moving past a political gridlock that could lead to changes in the government and potentially kick-start the stagnate economy, Bloomberg reported.

iShares Latin American 40 ETF