Investopedia 2014-11-20 Greg McFarlane

AP Images These ETFs are an excellent place to start for any investor interested in betting on Latin America.

Stereotypes might be odious, but the fact remains that the largest American exchange-traded funds are staid and unexciting. Especially when compared to their fiery, spicy Latin American counterparts. ETFs in the latter category are smaller in both size and number than the giant ETFs best known to most investors, but on the flip side they provide opportunities for uncommon gains. Here are a few of the largest ETFs that concentrate on equities that originate in Mexico and points south.

ETFs Large and Small

To summarize, the assortment of Latin American ETFs features two gargantuan players and several bronze medal contenders. By far, the two largest ETFs that specialize in Latin American holdings are BlackRock Inc.’s (BLK ) iShares Brazil Capped ETF (EWZ ) and Mexico Capped ETF (EWW ). (“Capped” refers to the funds’ operating expenses.) They have $5 billion and $3 billion in net assets, respectively. Which are nothing compared to, say, iShares Russell 1000 Growth ETF (IWF ) and its $26 billion under management, but which still manage to dwarf the also-ran Latin American ETFs in existence by a comparable multiple. (For related reading, see: The Best Places to Invest in Latin America .)

Nation-Specific Plays

The Mexico Capped ETF is unusual among broad-based ETFs in that one of its 59 components carries 17% of the weight. That’d be America Movil (AMX ), which is the fourth-largest wireless provider in the world, with more subscribers than Sprint Corp. (S ), T-Mobile U.S. Inc. (TMUS ) and AT&T Inc. (T ) combined. America Movil is the company most frequently associated with Carlos Slim Helu who, depending on America Movil’s stock price on a given day, is either the richest or second-richest man in the world. (For related reading, see: How Carlos Slim Built His Fortune .)

Meanwhile, the Brazil Capped ETF counts banking giant Itau Unibanco (ITUB ) as its largest component, at 9.4%. (For more, see: Why Colombia ETFs May Continue to Rise .)

Few All-LATAM ETFs

If we focus solely on ETFs that encompass Latin America in general, as opposed to just a single nation, our choices are considerably fewer. The largest region-wide ETF is, again, an iShares offering. Its Latin America 40 ETF includes positions in, as the name indicates, 40 of the largest Latin American stocks. Not coincidentally, the Latin America 40 ETF holds a weighty 19% of its $885 million in net assets in…America Movil and Itau Unibanco. Not only that, but more than 80% of the Latin America 40 ETF’s holdings are in Mexican and Brazilian equities. You have to go all the way down to the fund’s 16th-largest holding, Peru’s Credicorp (BAP ), to find one from another country. (For related reading, see: Invest in Brazil with These ETFs and Brazilian Stocks Rolling Over and What to do About it .)

The Latin America 40 ETF is followed by, again, two more iShares offerings. Those are the Chilean (ECH ) and Peruvian (EPU ) equivalents of the Brazil and Mexico Capped ETFs. With few large corporations operating in these nations, at least relative to the United States, it’s only understandable that ETFs that restrict themselves to said nations will be invested in fewer stocks. The Chile Capped ETF has 10% of its holdings in Falabella, Chile’s second-largest department store – basically the Chilean Target. At $371 million in total holdings, the fund is tiny, but it’s still larger than the All Peru Capped ETF at $268 million. That fund’s largest component is, as you might have guessed, Credicorp. In fact, Credicorp accounts for no less than 26% of the fund, making for one of the largest single-company ratios in all of ETFdom. There are only so many large Peruvian companies to go around. (For more, see: 3 Ways to Play Chile’s Biggest Conglomerate .)

Concentrated on Relatively Few Names

State Street Corp. (STT ), creator of the SPDR series of ETFs that forever redefined investing, is among the players in Latin American funds too. Its S&P Emerging Latin America ETF (GML ) is the next largest one to contain holdings from multiple countries south of the border. A look at its composition betrays a parallel between the similarity among giant funds in the United States, with their obligatory large holdings of Apple Inc. (AAPL ) and Microsoft Corp. (MSFT ); and the Latin American funds, and their correspondingly common holdings. The S&P Emerging Latin America ETF’s two-largest components are, as you’d probably guess, America Movil and Itau Unibanco, at 6% and 5%, respectively. That makes sense: the Emerging Latin America ETF is an index fund, one formulated to keep in lockstep with the S&P Latin America broad market index. That index, which is weighted by market capitalization. contains approximately the same stocks in the same proportions that the Emerging Latin America ETF does. Still, the propensity for fund managers to zig while everyone else is zigging seems to be a universal one. (For related reading, see: Better Latin American Buys than Argentina .)

The Bottom Line

If you’re used to dealing with American ETFs, with their thousands upon thousands of holdings and their relatively small expense ratios, Latin American ETFs can be an acquired taste. Fewer holdings and smaller net assets make for a more volatile class of ETF, which aggressive investors understand is part of the game, going hand-in-hand with the potential for high returns. Said Latin American ETFs aren’t for everyone, and are particularly not designed for the shy investor, but they can provide an interesting and perhaps profitable exposure to the stocks of plenty of successful companies that ply their trades far from English-speaking North America. (For related reading, see: Where NOT to Invest in Latin America .)