The S&P Latin America 40 index captures the top forty leading blue-chip companies from Brazil, Chile, Colombia, Mexico and Peru, who together hold roughly 70% market capitalization between them. While individual stocks are tradeable on the NYSE, BMV, B3, and BCS exchanges, there is also the NYSE Arca: ILF ETF that tracks the index for trading. While not set in stone, Latin America focuses mainly on commodities, energy and resource extraction, which have all been climbing significantly since the start of 2022. As of April 7th, S&P Latin America 40 was up 9.16% year-to-date, which is a significant return as compared to similar markets like the larger S&P 500, which is down 5.88% year-to-date.
Trade S&P Latin America 40 With The BlackRock ILF ETF
ILF is an ETF managed by BlackRock, Inc that invests in the forty biggest companies in Latin America’s relatively small equity market. Even though the S&P Latin America 40 covers five countries, the ILF ETF invests primarily in Brazilian and Mexican companies. The majority of Industry exposure falls on materials and energy, which are very sensitive to the fluctuation of commodity prices. With 29.4% material weighting, 25.5% financials, 14.7% energy and 12% consumer staples, it starts to become clear how the index has been benefiting from skyrocketing commodity prices in part triggered by the Russian invasion of Ukraine and the sanctions that followed.
ILA Weighting
Just two companies make up just under 30% of the ILA’s value. Brazilian multinational metals and mining company Vale S.A. (NYSE: VALE) occupies 17.10% of the ETFs weighting. Second is the Brazilian national petroleum company Petrobras which comprises 12.29% that, is split between Petróleo Brasileiro ADR Reptg 2 Pref Shs (NYSE: PBR.A) at 6.56% and Petróleo Brasileiro ADR Reptg S.A. (NYSE: PBR) at 5.73% Brazil’s Itaú Unibanco Holding S.A. (BVMF: ITUB4) takes fourth place at 5.67% weighting, followed by Mexico’s America Movil, S.A.B. de C.V. (BMV: AMXL) at 5.08% – a national telecoms giant. At 4.5% and 4.32%, Brazilian Banco Bradesco S.A. (NYSE: BBD) and B3 Brasil Bolsa Balcão S.A. (BVMF: B3SA3) are next bulking up the ETF’s financial investments. Seventh is Walmart México (BMV: WALMEX) at 4.26% then Grupo Financiero Banorte SAB de CV (BMV: GFNORTEO) who is Mexico’s second largest financial group. Closing off the top ten investments of ILA is the Mexican mining, transportation and infrastructure company which is the third-largest copper producer in the world, Grupo México SAB de CV (BMV: GMEXICOB), at 3.56% weight.
Excellent Performance From S&P Latin America 40 Index Companies
So far in this year, the ILF is shaping up to be an ETF filled with companies who are currently on a strong upward trend and one that’s not as easily offset by market volatility thanks to the sectors covered. A quick glance at the year-to-date share growth grants a good foundation of understanding for why the S&P Latin America 40 is doing so well in 2022: Here are the year-to-date earnings of the ten companies making up the majority of the ILF as of Friday, April 8th:
VALE – 45.04% YTD
PBR.A – 41.28% YTD
PBR – 40.09% YTD
ITUB4 – 24.31% YTD
AMXL – 1.49% YTD (But 51.56% Over Twelve Months)
BBD – 29.25% YTD
B3SA3 – 45.71% YTD
WALMEX – 7.08% YTD (But 19.83% Over Twelve Months)
GFNORTEO – 4.36% YTD (But 18.6% Over Twelve Months)
MEXICOB – 26.1% YTD
ILF ETF Growth Tops S&P 500 & Most Similar Funds
The ILF has outperformed the vast majority of broad-market equity indexes. Latin America is one of the only regions where stocks are up instead of down, thanks to the regional availability of material and energy reserves. When one averages all the companies making up the index’s ETF, the iShares Latin America 40 ETF has fruited no less than 27.83% gains as compared to the Vanguard S&P 500 ETFs -5.20% change to the total return price percentage. All comparable ETFs are down by similar ratios magnifying just how significant the gains of this commodity-sensitive fund actually are. Total International Stock ETF, Total World Stock ETF, FTSE Developed Markets ETF, and FTSE Emerging Markets ETF are all at negative 6.33% or more. Another excellent hallmark of this lesser-traded ETF is the dividend yield of 6.63%, which is just under double the Total International Stock ETFs 3.23% and six times the yield of the S&P 500 at 1.34%
As Commodities Rise, ILF ETF Gains Immense Growth Potential
Investors should consider the ILF during periods like the present when commodity prices are high and on the way up. The only significant risk that arises is when commodities reach a point of stagnation or start to drop in value. Stable commodities translate to poor performance for Latin America’s stocks and ETF. From the last financial crisis all the way up until 2022s war, commodity prices remained stable, which caused the ILF to underperform for almost a decade. However, now while bullish momentum is carrying commodities to record highs with no clear end in sight, the S&P Latin America 40 index and its ILF ETF are an excellent investment. Investors are advised to watch the index for the potential onset of volatility and the rapid effect of slipping commodity prices, but we are confident of good gains for 2022 as a whole. The ILF awards semi-annual dividends, and at 6.7% yield, it can’t be ignored.
Note: Please do not invest money or assets in the financial markets that you cannot afford to lose. This article should not be construed to be investment advice and is for information purposes only