The U.S.-China trade impasse paved the way for discounts in a lot of U.S. equities, but it also put the red tag sale in the emerging markets (EM) space. One corner of EM that investors may not have considered is within Latin America.
While most investors might have been driven away by the losses in EM during much of 2018, savvy investors who were quick to see the opportunity viewed EM as a substantial markdown. From a fundamental standpoint, low price-to-earnings ratios in emerging markets ETFs have made them prime value plays as capital inflows continue in 2019.
EM can also provide opportunities for dividend-seeking investors. Latin America, once again, could be an alternative investors may not have yet taken into consideration.
“While substantial literature exists on dividend investing in developed markets, there is little research on emerging market dividend strategies, in particular for Latin America,” wrote Analyst, Global Research & Design at S&P Dow Jones Indices. “S&P Dow Jones Indices surveyed the emerging market dividend payers in 2014 and found that Latin America constituted about 19% of the total global dividend payers. As such, Latin American markets are capable of supporting dividend-based strategies.”
“In countries like Brazil, Mexico, Chile, and Peru, benchmark providers already offer passive dividend indices as a way to measure performance and provide exposure to dividend-paying stocks,” Anguiano added.
Emerging Markets ETFs to Play
Ongoing U.S.-China trade negotiations and geopolitical tensions put emerging markets in a state of unease in 2018, but investors can now look to their resurgence through other broad-exposure ETFs like the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) or iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG).
Investors are increasingly emphasizing low cost a prime motivator for allocating capital in 2019, which makes ETFs like IEMG an attractive option. The fund provides this core EM exposure at a paltry 0.14 percent expense ratio.
Can’t make up your mind whether to invest in the plethora of emerging markets available in the ETF space or the Invesco QQQ Trust (NASDAQ: QQQ)? The Emerging Markets Internet & Ecommerce ETF (NYSEArca: EMQQ) marries the idea of technology and EM in one ETF.
EMQQ invests in companies with exposure to the ecommerce and Internet sectors in emerging markets. Purchasing EMQQ provides exposure to companies that are positioned to benefit as emerging economies mature, the consumer class expands, and their populations increases their utilization of the Internet and ECommerce.
For a Latin America-specific ETF trade, consider the Direxion Daily Latin America Bull 3X ETF (NYSEArca: LBJ). LBJ seeks daily investment results equal to 300% of the daily performance of the S&P Latin America 40 Index. The index itself is a float-adjusted market capitalization weighted equity index of issuers drawn from five major Latin American markets: Brazil, Chile, Columbia, Mexico, and Perú.