Whatever Happened to The...Market Vectors LatAm Small-Cap ETF?

It seems like so long ago that Latin America was muy caliente for investors looking for non-Asia emerging markets exposure. Today, Latin America as an investment destination can be described as “hace frio.” Of course, these things have a tendency to change and do so rather quickly, so why not have a look at the Market Vectors LatAm Small-Cap Index ETF

to see what's up with this unheralded ETF and if it might be offering some opportunity in 2012. It's actually pretty easy to figure out what has caused LATM's 27% year-to-date tumble. At the sector level, it's weights of more than 31% to materials and over 15% to financials. At the country level, it's a 38% allocation to Brazil. Making matters worse is the fact that the iShares MSCI Brazil Index Fund

has outperformed LATM by a healthy margin this year. LATM's almost 27% combined exposure to Mexico and Chile haven't exactly been a help either as Mexico has been dragged down by U.S. equities and falling copper prices have been an albatross for Chilean equities. The good news is the worst may be behind Latin American equities and assuming the market is able to mount a serious rally in the early part of 2012, it would be reasonable to expect small-caps would be leaders. Basically every traditional long ETF tracking a Latin American market has been savagely repudiated this year and LATM is no different. In that vein, the ETF appears to have found a bottom in the $20-$21 area and it could be safe to dip your toes in the water on a move above $24. From there, there's plenty of open real estate to the 200-day line at $28. If nothing else, LATM is worth looking for those that want to bet on a recovery in Brazilian and Chilean equities without owning the relevant ETFs tracking those countries outright. Bull case: Emerging markets return to favor and Latin America takes a leadership role in that scenario. Brazil tempers inflation and copper prices rise. Small-caps are once again embraced. Bear case: Not one of the aforementioned scenarios come to fruition. If emerging markets inflation remains and issue and raw materials demand remains slack, LATM might have more issues to contend with in the near future.