Under The Hood: A Different Kind Of LatAm Play
In the world of ETFs tracking Latin America, there are country-specific plays, with most being devoted to Brazil and there are regional plays that are de-facto Brazil plays because of their excessive weights to the region's largest and fastest growing economy.
Inevitably, these ETFs feature large weights to Petrobras (NYSE: PBR), Brazil's state-run oil producer, and Vale (NYSE: VALE), the world's largest iron ore producer. Another usual suspect in these regional ETFs is America Movil (NYSE: AMX).
Such is life with the iShares S&P Latin America 40 Index Fund (NYSE: ILF) as Vale, America Movil and various Petrobras securities account for over 32% of that ETF's weight. Those stocks combine for over 25% of the weight of the SPDR S&P Emerging Latin America ETF (NYSE: GML).
Given the struggles of Petrobras this year, investors might do well to take a look at a different type of LatAm regional play. Today's “Under The Hood” candidate First Trust Latin America AlphaDEX Fund (NYSE: FLN) fits the bill.
FLN made its debut in April as part of the large suite of international AlphaDEX funds launched by First Trust, the fastest growing of the top-10 U.S. ETF sponsors. Like the other ETFs in that group, FLN tracks a modified equal-dollar weighted index which means the best performers figure most prominently in the ETF. And like the First Trust Brazil AlphaDex Index Fund (NYSE: FBZ), FLN isn't heavily allocated to Petrobras and Vale.
In just over three months on the market, FLN has accumulated $2.9 million in assets under management and the 49-stock sports sector diversity that is at least on par with its more established rivals. Utilities, telecom, materials, consumer staples, financials and industrials all receive double-digit allocations in FLN.
A smaller weight to energy in FLN is actually an advantage of given the aforementioned struggles of Petrobras. Still, FLN does share one similarity with other LatAm regional ETFs in that Brazil accounts for 79% of the ETF's weight.
That's a quibble, but as a new ETF, FLN may have been able to differentiate itself even more with some type of noteworthy exposure to Colombia and Peru, which it doesn't offer.
That said, FLN deserves this much credit: If you can get past its higher fees, this rookie ETF has sharply outperformed GML and ILF since its inception and that's a fact that cannot be diminished.
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