Rolle im Portfolio
The db x-trackers MSCI EM LATAM ETF provides diversified exposure to many of the biggest and most liquid companies in Latin America. The region has seen remarkable growth of late, and Brazil in particular has emerged as a global powerhouse and the world’s seventh largest economy. The fund is best deployed as a tactical tool to overweight Latin America within a portfolio.
The MSCI EM Latin America Index is broadly diversified by sector, although on a geographic basis Brazil makes up more than half the total. Returns from the underlying index have been fairly volatile. An investment like this therefore requires strong stomach to handle the swings.
The fund does not make any dividend distributions, therefore it may not suit investors looking for income.
Fundamentale Analyse
Latin America has experienced rapid growth as countries in the region have embraced economic reforms and globalisation. Much rests on the health of Brazil, the largest economy in the area. Thanks to a wealth of natural resources, Brazil benefited from the rise in commodity prices over the last decade and the growth of raw material exports to China.
With China’s growth slowing, however, the demand trajectory for Brazil’s commodities --especially iron ore and oil-- is in doubt. Further muddying the picture is the extensive shale gas discoveries in the US, which could put pressure on energy prices.
Politically, Brazil is in flux. President Dilma Roussef secured a second term in the October 2014 election by a narrow margin, showing the country’s growing social unrest and public dissatisfaction with ineffective government spending, but her approval rating remains low. Roussef promised to introduce political reforms in her second term, but persistent political corruption and an unwieldy bureaucratic system could hamper her efforts.
Against this backdrop, Brazil’s growth has been rather erratic in recent years. From its record setting 7.5% in 2010, GDP growth tumbled to 2.3% in 2013 and only 0.1% in 2014. The HSBC Brazil Composite Output Index, which measures conditions in both the manufacturing and services sectors of the economy, fell from 51.3 in February to 47.0in March 2015 – a 70-month low (a value above 50 indicates expansion).
Inflation is also still a real concern for the country. Brazil has a target inflation rate of 6.5% but actual inflation has approached 8.1%, above the maximum deemed tolerable. To combat rising prices, Brazil’s central bank, which is not entirely independent, hiked interest rates to 13.25% in April, well above the rates of other major emerging market countries. If that tightening stance continues, it may weaken an already fragile economy. But at the same time, it could also help support the Brazilian real by attracting investors who seek higher returns.
Farther north, the reform efforts of Mexico’s president, Enrique Pena Nieto, whose approval ratings hit an all-time low in late 2014, have been widely perceived as a disappointment. During his tenure, political corruption has become even more rampant, with the country now ranking 103 out of 177 on Transparency International’s Corruption Perceptions Index. Overall, Mexico’s economy has rebounded in the last five years, with projected GDP growth forecasts of 3.0% in 2015.
Chile, Colombia and Peru make up smaller components of the Latin America index but represent key markets in the region, with GDP growth forecasts of 2.7 to 3.4% in 2015.
Indexkonstruktion
The MSCI EM Latin America Index is a free float-adjusted market capitalisation weighted index. The index includes the top 85% of all investable equities from this region, and currently has about 140 constituents. The index is reassessed on a semi-annual basis and reviewed quarterly to ensure accurate reflection of the growing equity market. The index has a large concentration in Brazil (53-58%), followed by Mexico (27-32%), Chile (5-10%) and Colombia (4-8%). On a sector level, financials (27-32%) is the top weight, followed by consumer goods (15-20%) and materials (10-15%). The biggest exposures at the issuer level are Itau and Petrobras, which each make up 5-9% of the total, when their common and preferred shares are combined, and America Movil (5-8%).
Fondskonstruktion
The fund uses synthetic replication to provide exposure to the underlying benchmark, entering an unfunded swap with parent company Deutsche Bank. The fund uses investors’ cash to buy a substitute basket of securities, the performance of which is exchanged for the performance of the index. The substitute basket is marked to market daily and its composition can change every day. db X-trackers ETFs’ substitute baskets typically consist of OECD equities. At the time of writing, it consisted of European and Japanese equities from a variety of industries. Its total value was equivalent to 103.10% of the fund’s net asset value. Swaps to zero whenever there is a creation or redemption in the fund or the maximum swap exposure exceeds 5% of the funds prevailing end of day NAV. Under the terms of the swap, the counterparty agrees to provide the fund with exposure to the total return of the MSCI EM Latin America Index, net of any associated taxes, costs or fees. The return from the swap assumes that all dividends paid by the underlying stocks are reinvested in the index. This fund does not pay out any dividend distributions.
Gebühren
The fund levies a total expense ratio (TER) of 0.65%, which falls in the middle of the range for ETFs tracking Latin American equities. However, the TER may be reduced by swap enhancements which db X-trackers estimates to be around 0.15% per annum. The fund’s estimated holding cost, as measured by the tracking difference, is therefore 0.50% per annum, according to the company website. Investors should bear in mind that the realised tracking difference may be different from this estimate. Additional costs to investors associated with trading the ETF include bid-ask spreads and brokerage fees.
Alternativen
Many providers offer ETFs linked to the MSCI EM Latin America, including SPDR, Lyxor, HSBC, Amundi and iShares The fund with the lowest fees is the Amundi fund, with a significantly lower TER of 0.20%.
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