Two South American ETFs look for resource rebound

We think conservative investors could hold up to 10% of their portfolios in foreign stocks. One way to do that is to buy carefully chosen exchange traded funds (ETFs) that have an overseas focus. The best ETFs offer very low management fees and well-diversified, tax-efficient portfolios of high-quality stocks. Here are two international ETFs that we follow regularly. ISHARES MSCI CHILE INVESTABLE MARKET INDEX FUND (New York Exchange symbol ECH; us.ishares.com; buy or sell through brokers) is an ETF that aims to track the MSCI Chile Investable Market Index, which consists of stocks that are mainly traded on the Santiago Stock Exchange. Chile is the world’s biggest copper producer and a major supplier to Asian markets. The fund’s top holdings are Enersis AS (electricity), 8.0%; Empresas Copec SA (conglomerate), 7.4%; Cencosud SA (retailer), 7.2%; S.A.C.I. Falabella (retail), 6.6%; Empresa Nacional de Electricidad (electricity), 6.2%; LATAM Airlines SA, 5.7%; Quimica y Minera de Chile (mining), 5.0%; Banco Santander Chile (banking), 4.4%; and Empresas CMPC (pulp and paper), 3.9%. The fund’s industry breakdown is: Utilities, 24.8%; Financials, 17.2%; Consumer Staples, 13.6%; Materials, 12.6%; Industrials, 9.3%; Consumer Discretionary, 8.3%; Energy, 7.4%; Telecommunications, 3.2%; and Information Technology, 2.5%. iShares MSCI Chile Investable Market Index Fund was launched on November 12, 2007. The ETF has an expense ratio of 0.60%. [ofie_ad] ISHARES MSCI BRAZIL INDEX FUND (New York Exchange symbol EWZ; us.ishares.com; buy or sell through brokers) is an exchange traded fund that is designed to track the Brazilian stock market. The fund’s top holdings are Petrobras (oil and gas), 12.7%; Vale do Rio Doce (mining), 8.4%; Cia Itau Unibanco Holding (banking), 7.4%; Banco Brandesco (banking) preferred, 6.5%; Cia de Bebidas das Americas (beer and beverages), 5.5%; and BRF SA (food), 3.6%. The ETF was launched on July 10, 2000. It has an expense ratio of 0.60%. The fund’s focus on the resource sector and its concentration in certain stocks, such as Petrobras and Vale do Rio Doce, add risk. However, both are high-quality stocks. Brazil’s economy is forecast to grow at a rate of 2.8% this year. Growth could be as high as 3.4% next year. In the latest issue of Canadian Wealth Advisor, we look at the long-term outlook for these two South American economies and their dependence on resources, and whether they can overcome a drop in commodity prices and slower growth in Asian markets. We conclude with our clear buy-hold-sell advice on both of these exchange-traded funds. COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members Do you think the resource-based economies of emerging regions such as South America will ultimately develop into fully diversified economies? Or will they continue to go through the boom-and-bust cycles typical of economies that rely chiefly on resources? Do you think ETFs lessen the risk of investing in resources? Let us know what you think.