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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some Latin American stocks to your portfolio, the SPDR S&P Emerging Latin America ETF (NYSEMKT: GML ) could save you a lot of trouble, with its substantial holdings in nations such as Brazil and Mexico. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The SPDR ETF's expense ratio -- its annual fee -- is 0.59%, and it recently yielded 1.9%. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF lagged its benchmark over the past three years, but handily topped it over the past five. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
With a low turnover rate of 7%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
Why Latin America?
Adding any companies from outside the U.S. can strengthen a portfolio through geographic diversification. (However, it's worth noting that many American giants generate much, if not most, of their income from global operations.) Latin America, meanwhile, also offers the benefit of economies such as Brazil's that have been developing, and growing at a faster clip than ours.
More than a handful of Latin American companies had strong performances over the past year. Mexican cement giant Cemex (NYSE: CX ) surged 72%, for example, partly on strong growth selling in the U.S. The company is expected by some to return to profitability next year, thanks in part to a recovering housing market. It has recently been both upgraded and downgraded by Wall Street, and has refinanced its debt, as well.
America Movil (NYSE: AMX ) ,,belonging to Carlos Slim, who has overtaken Warren Buffett and Bill Gates as the world's richest man, advanced 8%. The company has become a telecom giant, taking on significant debt as it buys more towers and adds licenses and other operations (not only in Latin America but also Europe), as well as growing organically. Ironically, Slim has been rebuffed recently when trying to expand his TV offerings in Mexico. In the U.S., its pay-as-you-go TracFone service is growing, too, with more than 21 million subscribers and a recent deal to offer iPhones.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Petrobras (NYSE: PBR ) , Brazil's top oil company, is down some 36% over the year, facing competition from the likes of Colombia's Ecopetrol, another holding of this ETF. It's raising its refinery prices, and recently announced the commercial viability of two sizable oil fields. It carries substantial debt and is aiming to cut costs, as its operating costs are above average.
Brazil-based Vale (NYSE: VALE ) , the world's largest iron-ore concern, shed 16% and recently yielded a solid 3.2%. It's poised to profit from growth in China, and has been enjoying double-digit growth rates for revenue and earnings over the past few years. It expects a strengthening iron ore market in 2013.
The big picture
A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
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