State Street Global Advisors (SSgA), the fund provider behind the SPDR ETFs, filed paperwork with the Securities and Exchange Commission to bring to market an ETF that tracks an index based on publicly traded companies in Latin America. It will be SSgA’s second fund focused on the region.
The SPDR S&P MILA 40 ETF is entering a regional niche occupied by only a few funds such as the segment leader, the $1.7 billion iShares S&P Latin America 40 Index Fund (NYSEArca: ILF) and SSgA’s own $115 million SPDR S&P Emerging Latin America ETF (NYSEArca: GML), which has 107 holdings. Apart from size of the portfolio, it’s not immediately clear how SSgA’s new fund differs from GML.
Latin America has become increasingly popular among investors in the past 10 years. A huge part of that story is the ongoing rise of Brazil, which is one of the world’s biggest agricultural producers and is quickly turning into a big oil producer as well. Also, countries like Chile that produce copper for China and companies like Mexico-based cellular firm America Movil are part of the attraction.
The new fund will use a sampling strategy to track an index comprising the largest and most liquid stocks trading on the Mercado Integrado Latinoamericano (MILA) platform, an integrated trading venture formed by various Latin American exchanges.
The fund’s underlying index itself consists of the largest 40 eligible stocks based on float-adjusted market capitalization that must be above $100 million as of the rebalancing date. Further, to ensure liquidity, constituent stocks must have a three-month average daily value traded in their local markets of above $250,000 as of the “rebalancing reference date,” the filing said.
According to the filing, the principal risks of investing in the MILA 40 ETF are typical of investments in emerging markets and include greater market volatility, high levels of inflation, deflation and/or currency deflation than those typically found in developed markets.
Latin American countries in particular are typically characterized by high unemployment, inflation and high interest rates. Further, because a relatively small portion of companies represent such a large percentage of the Latin American market, they may be more vulnerable to adverse economic circumstances and market movements.
Trial by fire is one way to discover why ETF transparency matters.
Most people now realize leveraged ETFs can hurt you, but how, then, to use them?
What would a shift out of a mutual fund and into an ETF look like up close?
China A-shares in a broad emerging market fund may be the right idea at a terrible time.