ILF: Strong Latin American Equity ETF With High Yield And Low Valuation

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Diversified funds are a good option for parking your savings and limiting risks compared to investing in single stocks.ILF focuses on Latin America and has exposure to sectors like mining, energy, and...

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You can become one too! Share your best investment idea by submitting your article for review to our editors. Get published, earn money, and unlock exclusive SA Premium access. Click here to find out more » Adán Gault It is well known that investment funds are a suitable alternative to investing your savings for a future goal or project. Knowing where to start will be a good learning curve. Diversified funds are a type of investment that allows you to save while limiting the risks compared to investing in a single stock, or in a portfolio with few stocks. However, diversification does not guarantee a determined return at an exact moment. Having clear objectives to be achieved with your investment, the next step is to identify which investment fund is closest to your needs and study its characteristics. Investment funds can be focused on one area of the market or several of them. These areas can be financial, materials, basic consumer products, energy, industries, health, and others, taking these areas into account can make your investment more accurate. Some funds focus on specific regions, such as the iShares Latin America 40 ETF (NYSEARCA:ILF), which focuses on Latin America. This fund has particular characteristics that could make it a successful investment for investors. In the next part, I will share my thoughts on why I am bullish on ILF. iShares Latin America 40 ETF Investment Strategy This fund has an index composed of 40 of the most important equities in Latin America. It tracks the S&P Latin American 40 index, managed by S&P, one of the most important index providers in the world. Country Exposure This information becomes relevant when we go in-depth into the sectors in Latin America where ILF has exposure. Brazil and Mexico are the two countries with the highest percentage of domicile of securities issuers. BlackRock Brazil is known for being a country that has several large economic sectors, including mining. It stands out in the international mining sector both in terms of production and reserves, being the fourth country with the largest iron ore reserves in the world. It is, in fact, the third-largest producer of this mineral. In terms of energy, it is the third most important energy consumer in the Western Hemisphere. Its energy generation is based on renewable sources such as hydroelectric and non-renewable sources such as oil and natural gas, which is why companies invested in these sectors in Brazil have a large field of action. Now, it is a fact that the Latin American economy has had slow growth in recent years. At the end of last year, the GDP growth rate in the region increased by 2.1%, according to the CEPAL report. CEPAL This figure represents a decline compared to the results of 2022, but the predictions for this year are a little more encouraging. Nevertheless, Brazil and Mexico have remained the main economies in that area, as the largest market based on their gross domestic product. According to the IMF, its prediction for 2024 is that Brazil will produce goods and services for a total of 4.3 trillion international dollars. On the other hand, the Mexican economy is expected to reach a GDP of 3.4 trillion dollars, which are interesting figures compared to the results of 2023. On the other hand, the gross domestic product of the United States for this year is forecast to be a little lower in relation to Latin American countries. CEPAL GDP in the first quarter of 2024 has grown by 0.4% compared to the previous quarter. This rate is four-tenths lower than that of the fourth quarter of 2023 when it was 0.08%. The year-on-year variation in GDP has been 3%, one-tenth less than that of the fourth quarter of last year. Sector Exposure Sector exposure plays an important role in any ETF. In the case of ILF, it has a greater weight in the financial and materials sectors. Consumer staples and energy also have an outsized role, due to the large size of the countries the fund has exposure to, and their commodities sector. BlackRock Key Holdings ILF's five largest companies operate in the first three sectors of mining, energy, and finance. These five companies are among the 52% of companies, to which the fund has exposure to, that are located in Brazilian territory. BlackRock ILF's two largest holdings are representative of this Brazilian exposure. Vale S.A. (VALE) produces iron ore as a raw material for the manufacture of iron in Brazil and internationally. The company operates through the Iron Solutions and Energy Transmission Materials and Derivatives segments such as gold, copper, silver, cobalt, and precious metals among others. Its headquarters is located in the city of Rio de Janeiro. It was founded in 1942, and just seven years later, accounted for 80% of Brazil's mineral exports. Seeking Alpha For the first quarter of this year, the company reported that sales were BRL 41,891 million with a net profit of BRL 8,291 million. Basic earnings per share from continuing operations was BRL 1.93 and diluted earnings per share was BRL 1.93. It has a market value of $149.24 million and its total shares are at 12,075,134. On the other hand, Petróleo Brasileiro S.A. - Petrobras (PBR.A) is a semi-public, mixed-ownership oil company, with foreign private participation, founded in 1953. It operates actively in the international market, with an important diversity of products related to the hydrocarbon industry. It stands out for its offshore oil exploration and production operations and holds the record for operating the world's deepest crude extraction plant. PBR is the fourth largest publicly traded international oil company in the world and the largest in Latin America. Seeking Alpha Since 2009, it has surpassed large companies in the sector such as the Mexican PEMEX and the Venezuelan PDVSA in sales, achieving sales of almost $100 billion for the year 2022. So far this year, the company has benefited from the increase in oil prices, which presents an encouraging outlook for the company's revenues. In the first quarter of the year, PBR had earnings per share of $0.83 and its quarterly revenue stood at $23.77 billion. PBR shares closed at $17.04, up 45.77% over the past 12 months. The company has a weight of 13.17% in ILF, and its share count is at 13,825,112. Valuation Analysis Share prices and valuations are an important aspect to consider before making an investment. International stocks tend to trade at low prices and valuations, especially compared to U.S. assets. This is due to their higher risk, coupled with strong demand from U.S. stock investors. Differences in the percentages assigned to different industries also influence this, as U.S. stock indices are overweight in technology, and companies in this industry have high prices. On the other hand, ILF focuses on financial, materials, and energy companies. Of these, the latter two tend to have very low prices and valuations. Vale SA has a forward P/E ratio of 5.0 and is the largest materials company in the fund. For its part, Petrobras has an even lower forward P/E ratio of 3.8 and has an even higher weightage in ILF. Most companies in these industries have very low P/E ratios, and the same situation is presented for the other ratios. This contrasts positively with technology companies such as Microsoft Corporation (MSFT), with a forward P/E ratio of 37.4, and Apple Inc. (AAPL), with a forward P/E ratio of 32.3. Reviewing ILF's figures, we find that the fund has a TTM P/E ratio of 8.2, compared to the S&P 500, which has a ratio of 21.1, more than double. We see something similar with the different ratios, taken from Morningstar. Morningstar Morningstar Apart from this, U.S. stocks are very overvalued according to Shiller's P/E ratio. This is at 34.5, an extremely high level, and above almost all previous periods. According to this indicator, U.S. stocks traded at higher prices during the 2000 tech bubble, and only during a few months. Multpl Investing in value stocks is a very effective and generally very profitable investment strategy. High-profile investors such as Benjamin Graham and Warren Buffett have had great success with these, and I, personally, consider ILF to provide excellent exposure to this sector. Dividend Analysis If you invest in ILF, you get 5.0% of your investment in your pocket every year. On the other hand, if you invest in SPY, your earnings will only be 1.3%, making it obvious how much money you could save for your future goals. ILF's dividend is higher compared to other funds and significantly higher than SPY's. ILF Dividend Growth: Seeking Alpha SPY Dividend Growth: Seeking Alpha Well, it is clear that in the last 12 months, there has been a notable decrease in ILF's dividends, which may be partly due to the volatility of dividends, and to a very large payment in 2022, as a result of high commodity prices. But in a more general scenario, comparing the three-year growth shows a notable difference in dividend growth that ILF presents compared to SPY, with ILF showing a growth of 34.38% and SPY a growth of 6.51%, with ILF outperforming by a more significant figure and well above average. According to the SEC, ILF currently generates a solid 4.60% yield. Total Performance for ILF BlackRock The fund's returns have been showing an outstanding increase in the last two years, which positions it in a good spot in the investment market. This progress will continue to be notable even as the fund's yield decreases. Data by YCharts ILF's returns are closely tied to the price of oil and other natural products. Among the top 10 companies in its holdings, the vast majority operate in the oil and mineral sector. Relating this data to the chart, we can link two of the three steep drops it presented that were caused by the decline in oil prices around 2009 and 2016, while the third noticeable decrease in its performance was during the pandemic. After this though, growth has been progressive, and compared to SPY, the difference in current growth is not very noticeable, without taking into account that most companies in SPY are in the technology sector, which tends to have better market returns. It is important to know that past performance is not indicative of future returns, and therefore should not be the only factor to consider when seeking a fund to invest your savings. Performance data depends on the behavior of financial markets and the securities that make up the portfolio. ILF's returns are around 10% lower than those of its Latin American equity ETF peers. Data by YCharts Its returns have shown a small increase in the last three years, with similar return figures to its peers. So, ILF seems about the same as its peers right now. Data by YCharts Besides those, the largest equity ETFs in the region are for individual countries. The Argentina ETF has very high returns, the Mexican ETF high, while Brazil and Chile demonstrate a relatively low performance. Data by YCharts Overall, this indicates that there are lots of opportunities for investment in the region as such. Risks All funds tend to have some degree of risk, some more than others. In the case of ILF, being a fund whose assets are Latin American, there are some risks to consider. Many of these companies sell commodities whose prices fluctuate, such as Petrobras, whose profitability goes hand in hand with the current price of oil. On the other hand, some also work with materials such as iron, including Vale, and depending on its value in the market, it can also change the profitability of the companies that work with it. Another risk to consider when investing in ILF is that since it is a Latin American investment fund, there is a constant change in the value of the dollar in relation to the currency of each country, such as the Brazilian real and the Mexican peso. If any of these changes, it could affect your investment. For example, the Mexican peso has devalued quite a bit in recent weeks, largely due to Sheinbaum's election. Google Finally, another risk factor to consider for this type of fund is the political situation of the countries to which its assets belong, given the bad elections and corruption present in this part of the continent. These can affect the country's economy and consequently the profitability of the companies present in it. An example of this could be the fall of the Colombian economy caused by the complications of the health sector that the country is experiencing. Conclusion  ILF has important positive characteristics, including its high dividend yield and medium-term growth potential. In my view, it is a strong investment fund and one which should suit the needs of many investors.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.24.2","shortVersion":"4.24.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2445616027"}