Spotlight: In Solid LatAm, Chile Stands Out

December 02, 2022

Latin America exchange-traded funds are outpacing their global peers this year, boosted by the metals, mining and other commodity-related companies in their portfolios. The $1.1 billion iShares Latin America 40 ETF (ILF) is up 13% year to date; the fund offers exposure to Brazil, Mexico and Colombia and companies like Vale S.A. 

Among those countries, Chile’s performance stands out. The $492 million iShares MSCI Chile ETF (ECH) has risen 18% higher so far this year. Returns like that are hard to find when most regional indexes are down by double-digit percentages.  

Still, the fund’s inflows have been modest this year: $35.5 million, compared with $293.4 million for ILF, according to ETF.com data.  

ECH holds a narrow portfolio of 25 companies. The largest holding, Sociedad Quimica y Minera de Chile SA, makes up 23% of the portfolio, more than twice the weight of the next largest company. SQM’s stock has doubled this year. 

The materials sector, of which SQM is a part, is the largest sector in ECH, at 29% of the portfolio. Financials including Banco de Chile—up 19% this year—make up 22% of the portfolio, followed by utilities, at 16%. Minerals and metals make up more than half of Chile’s exports; copper futures, for example, have gained 12% in the last three months. 

Chile is the top country in the Freedom 100 Emerging Market ETF (FRDM), a fund tracking an emerging market index that weights its country exposures by economic and personal freedoms. The underlying thesis developed by the Life + Liberty Indexes CEO and Founder Perth Tolle is that markets of countries guaranteeing such freedoms are able to grow more sustainably and recover from drawdowns more quickly. Chile represents more than a quarter of FRDM’s portfolio. 

“Chile is our top holding right now due to its outperformance. It started out being a top three holding at the time of rebalance in January, and it’s grown to be the top holding because of its commodities exposure,” Tolle commented in a recent ETF Working Lunch podcast.  

ECH has a 0.57% expense ratio and a 9.53% dividend yield. 

One major drawback to the fund trading stats is its ETF.com Implied Liquidity rating of 2 out of a possible score of 5. It has a fairly wide average spread of 0.15% and an average daily dollar volume of $10.6 million. Still, ECH currently offers exposure to a market that’s performing well as most others struggle. 

 

Contact Heather Bell at [email protected] 

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