I'm Betting on Latin America and This ETF for the Balance of 2022

Here I'll show you my No. 2 top pick for the remainder of 2022, amid the continuously changing -- and increasingly volatile -- global political picture. This one, I will say, is a trickier idea to express than last week's energy pick that made up my No. 1 recommendation. But my thesis is simple: With global and trade tensions rising with the muscle flexing of China and Russia, a number of American companies are shifting to reshore and nearshore operations, by shifting more business to nations that are friendlier or closer, or both, to the U.S. So, we must ask, Who will benefit most from these moves? I believe Central and South America will benefit disproportionately. Canada will benefit too, but Mexico should do extremely well. Also, at the same time as more U.S. companies reposition, China is working closely with the Solomon Islands. If you add this little-discussed move to the nation's ongoing expansion of man-made islands in the South China Sea, you see China is able to project its naval forces in the entire region. While this isn't core to my thesis, it adds to the security element of near-shoring. This nearshoring has several clear advantages: Trade and shipping can be over shorter distances, through easily patrolled regions, making nearshoring more attractive to companies and governments. Natural resources can be secured from countries that are trusted. As just in time manufacturing gives way to redundancies, new manufacturing sites will be created. It's true that some of this transition will be directly in the U.S. We've seen at least two large semi-conductor plant announcements recently, but much of this will go to Mexico and the rest of the Americas as labor cost considerations favor those regions -- they are cheaper. Cynical observers might say this all seems too familiar, that every few years for the last half century, we've heard calls that This is South America's decade. But this time it could really be true. You can't deny that if these countries do well through beneficial business relationships, we should see their currencies do well, too. We should also see their bonds do well, both on a spread basis and an all-in yield. So, how can investors play this? One way is though exchange-traded funds. First, the iShares JP Morgan EM Local Currency Bond ETF , a local currency bond fund, has some of this, but it is global and not concentrated enough in Central and South America. The broad stock market indexes in the region are also worth a look. My only hesitation is that my thesis is more about the countries and the region and overall economy than specific stocks, but they should benefit, too. In my own portfolio, I've been using iShares Latin America 40 ETF to express this view. It is a 40 stock Latin America focused ETF. It is heavily exposed to Vale , the Brazilian multinational mining and logistics corporation. More than 16% of the portfolio is in VALE, in fact, but that fits well enough with my commodity view, so it's acceptable. Also, overall, it seems to be performing well and should, from what do I know about the companies, benefit from view that the Americas will see sustained growth and investment as the U.S. government and companies redo their supply chains. My favorite sector is domestic energy. I use a broad definition of domestic to include countries, or regions where the political system is truly democratic, rather than autocratic, where the moral values are similar to ours, and regions where there is geographical proximity as it makes it easier to ensure the safety of supply. What's my top pick? ILF is up 32% year-to-date, but its three-year average annual return is only 1.5% and the five-year is 3.26%, well below the S&P 500's 18% and 16% respectively. So, I see upside. I have settled on ILF, as I view it as an aggressive trade, and I am only allocating a small portion of my total capital, so I can buy on dips, if any. But not matter the fund or specific strategy, growth prospects of Central and South America appear promising right now, and positions that take advantage of that growth should do well.

I'm Betting on Latin America and This ETF for the Balance of 2022

Let's examine why investing in South and Central America as U.S. companies 'reshore' could be the next big thing -- and let's explore several funds to consider.

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