- We review the performance and volatility of LATAM equity indices ETF´s for the past five years. Spoiler: it looks ugly.
- We analyze five years of historical prices of trackers of broad and representative equity indices across LatAm.
- The ETF equity indices investing is equivalent to a passive strategy, long, buy-and-hold the local market weighted portfolio.
We use the following ETFs per country:
- Argentina = ARGT Global X MSCI Argentina ETF
- Brazil = EWZ iShares MSCI Brazil Capped ETF
- Chile = ECH iShares MSCI Chile Capped ETF
- Colombia = GXG Global X MSCI Colombia ETF
- Mexico = EWW iShares MSCI Mexico Capped ETF
- Peru = EPU iShares MSCI All Peru Capped ETF
- US (S&P) = SPY SPDR S&P500 ETF Trust
- All of our LatAm sample underperformed significantly the SPY (S&P).
- Most of the underperformance came from large currency declines (hedge the FX!).
- Still in local currency equity returns were feeble across the region except for ARGT (Argentina) and to a lesser extend EWW (Mexico).
- Every country is fighting their own demons as volatility show mixed trends across LatAm.
- EWZ´s (Brazil) volatility is at a 5-year maximum and is the greatest among our sample, GXG (Colombia) follows and is at a 5-year maximum as well.
- ECH (Chile) and EWW´s (Mexico) volatility stand out with the lowest level of the LatAm sample.
- Far from defensive LatAm equity index ETFs are near from 5 year-lows in USD terms while SPY (S&P) has made several new highs throughout the period.
LATAM Equity Indices trackers massively underperformed the S&P in USD terms in the past 5 years
With an absolute return of 72.7% (11.5% CAGR) in the last 5 years the SPY (S&P) stands above all of our LATAM equity index trackers universe´s performance.
- EWW (Mexico) the lesser loser with a -10.9% (-2.3% CAGR).
- EWZ (Brazil) the biggest loser with a -56.9% destroying value at a 15.5% a year pace (CAGR). ECH (Chile) and GXG (Colombia follow closely with a -52.8% and -49.2% respectively
- ARGT (Argentina) and EPU (Peru) in between but still a disappointing -25.7% and -24.5% respectively.
- The greater period of underperformance goes from 2013 to 2015 as no LATAM index followed the strong rally of the SPY (S&P).
- Since 2015 the SPY (S&P) has gone nowhere and most of all LATAM equity index ETFs have suffered large declines despite a mild recovery in 2016.
(We use adjusted close price)
- Simply put, for every dollar invested 5 years ago, we would have received each year a 11.5% return if we invested in the SPY (S&P), -2.3%% if invested in the EWW (Mexico) and -15.5% if invested in the EWZ (Brazil).
- When using a 3-year period most of our sample performs worse across the region as political risks and economic concerns increased significantly. This holds for all of our sample except for ARGT (Argentina) with a 5.2% CAGR, however still below the SPY (S&P)´s 9.6% CAGR.