ILF: This Overlooked International ETF Has 20% To 33% Potential Upside

There's a whole world of stocks out there, beyond the U.S. stock market.

Virtually every year, multiple international markets dramatically beat the S&P 500 Index. But many international stocks aren't even listed for trading on U.S. stock exchanges.

The nice thing for active investors and traders these days is that you can have access to almost every international stock market in your normal (or retirement) brokerage account (including trading options on them), through using exchange-traded funds (ETFs).

I looked at the universe of international ETFs, using a screen that finds those that are liquid (over 500k average daily volume and with options trading available) and showing price action strength (currently above their 20-, 50- and 200-day moving averages).

And while the SPYders are off to a strong start in 2017, there are over 30 qualifying international ETFs that are beating the market this year. They primarily come from the Asia and Latin/South America regions.

For further 2017 gains and broad market outperformance, my favorite selection among these is iShares Latin America 40 ETF (ILF).

ILF seeks to track the performance of 40 of the largest Latin American equities; it actually holds around 42 stocks currently. The top 10 holdings of this ETF comprise around 50% of the total assets.

While ILF holds equities from Brazil (EWZ), Mexico (EWW), Chile (ECH), Peru (EPU) and Colombia (GXG), the dominant holdings are in stocks from Brazil (60% of assets), Mexico (24%) and Chile (10%).

The top two holdings of this ETF are in Brazilian bank stocks, ITAU Unibanco (ITUB) and Banco Bradesco (BBD), but it also has significant holdings in the Materials, Consumer Staples and Energy sectors.

You might be thinking, "Why would I want to own Brazil and Mexico stocks? Those are areas that I keep reading are having economic and political problems."

Well, as the old saying goes, "The tape tells all." This means the price action is the most important thing to know, and often takes into account forward-looking anticipated events and expectations, not just current ones.

And the price action in this group is very strong, which is the thing I'm most concerned with for my ETF trading. ILF is up over 11% year-to-date (YTD), while the SPYders are up 3% -- that is nearly 4x the gains. The bottom line is that big money is flowing into Latin/South American stocks, and this doesn't look likely to let up, in my view.

Even though it achieved strong gains in 2016, ILF can achieve further potential gains of 20% to 35%+ this year, in my analysis. This ETF is down so heavily from highs reached in 2011 and 2014 that there is plenty of upside recovery room in this rebound rally.

Take a look at the long-term ILF Weekly chart below.

This chart is similar to those that I utilize for trading sectors (with ETFs and ETF options) in our Wyatt Research ETF Sector Alerts premium service, which has unique, tested indicators and settings.

It includes Exponential Moving Averages (Exp MA), which show the average level over a certain time frame with a heavier weighting to recent price action (these are useful to show directional trends and support/resistance levels), and Williams Percent R, which is one of the oscillators I use to measure the strength of price action.

ILF Weekly Chart
 

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Disclosure: None.

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