Index funds have long been a Foolish way to gain instant, low-cost diversification without worrying about timing the market. Their ease and convenience may explain the growing popularity of exchange-traded funds -- mutual funds that trade like stocks. According to the Investment Company Institute, ETF assets totaled more than $559 billion as of the end of February -- a 29% increase over last year.

Originally modeled after index funds, ETFs have gradually narrowed to target specialized slices of the market. While that's a boon to investors seeking specifically targeted investments, it also concentrates the risks of specialization, tilting a portfolio away from the diversification that makes index investing attractive.

Today, we're looking at the exchange-traded funds that focus on Latin American markets. While much attention is focused on China and India, Latin American economies remain surprisingly strong.

We'll then combine that information with the views of the collective intelligence of the 96,000 professional and novice investors at Motley Fool CAPS, to see which funds our participants have rated as the best.

ETF

Net Assets

YTD Return

3-Year Annualized Return

CAPS Rating (Out of 5)

iShares MSCI
Chile Index
(NYSE: ECH)

$59.9 million

8.4%

NA

***

iShares MSCI
Mexico Index
(NYSE: EWW)

$1.6 billion

6.8%

37.6%

*****

iShares S&P
Latin America 40 Index
  (NYSE: ILF)

$3.4 billion

6.4%

49.7%

*****

SPDR S&P
Emerging Latin America
(AMEX: GML)

$81.3 million

4.7%

NA

*****

iShares MSCI
Brazil Index
(NYSE: EWZ)

$6.9 billion

1.4%

54.8%

*****

Sources: The Wall Street Journal and Yahoo! Finance. CAPS ratings courtesy of Motley Fool CAPS.

Tread carefully with ETFs, Fools; while the market offers many exchange-traded funds, few have a long history. While we screened for ETFs with a three-year performance record this week, only time will tell whether they can continue building a solid track record over longer time periods.

A strategy that pays dividends
Although the Brazil index has lagged behind other Latin American ETFs so far this year, over the past three years it has outperformed them.

More than 1,300 investors have shared their opinion of the iShares Brazil Index on CAPS, and 98% of them see it continuing to outperform the market. It's not only the export markets that have investors understanding the strength behind Brazil's surge, but the growth of the country's domestic economy as well, as CAPS player machlapowski recently noted:

Brazil's economy is buoyant because of exports of commodities, but at the same time has made strong advances in [developing] its internal market. Also, tremendous oil reserves have been found recently. In addition, country foreign exchange reserves are greater that foreign external debt. As to my knowledge, country is expected to receive an upgrade in its sovereign credit rating.

Another CAPS player, investnottrade, finds this ETF to be an easy way to get the best of an entire country's market:

With Brazil finally having a stable (actually better than our dollar) currency, they should begin to benefit even more from international trade. This should be especially true in the mining and materials segment, which is why this is a good pick as a way of hedging against inflationary pressures in the U.S. economy. ... I think this ETF is a great way to ride the growth from a lucrative market without the crapshoot of finding individual companies.

With an ETF like the Brazil index, you automatically invest in top companies like Companhia Vale do Rio Doce (NYSE: RIO) and Motley Fool Income Investor choice Petroleo Brasileiro (NYSE: PBR), and across sectors like metals, energy, and telecommunications.

A basket of opinions
Although ETFs have been around since the 1990s, investors should exercise caution with any ETF lacking a long track record. Over on CAPS, let us know whether you think these ETFs will continue to outperform, or whether it's time for new ones to top the lists.

Motley Fool Global Gains agrees that the world is your investment oyster. Pry open 30 days of free stock picks with a trial subscription.

Fool contributor Rich Duprey does not have a financial position in any of the funds mentioned in this article. You can see his holdings. The Motley Fool has a world-class disclosure policy that has been around the world and back again.