No Gusta on the Mexico ETF

February 3rd at 2:21pm by Todd Shriber

The iShares MSCI Mexico Capped ETF (NYSEArca: EWW) is the second-best single-country ETF tracking a Latin American nation this year, just as it was in 2013.

And as was the case last year, EWW’s status as second-best among LatAm country ETFs does not mean a whole lot because the fund is trading lower. At the start of trading Monday, EWW sported a 2014 loss of 7.5%.

In a testament to just how bad LatAm and emerging markets ETFs in general have been this year, EWW’s loss is not enough to qualify it for entry to the 10 worst ETFs of 2014 club. That list is currently home to three country-specific LatAm funds and three others with significant exposure to the region. [Brazil ETFs in Dire Shape]

While Mexico has been mentioned as one of the emerging markets that could possibly offer investors some shelter from the storm and highlighted as a possible beneficiary of improving economic data in the U.S., EWW has betrayed investors on both fronts. Supposedly conservative emerging markets ETFs have wilted this year and EWW disappointed last year despite soaring U.S. equities and robust data points.  [Conservative Emerging Markets ETFs Betray Investors]

However, EWW is following U.S. equities lower in 2014 and with the ETF still more than 7% off its 52-week low, investors have little incentive to consider Mexican stocks here.

“Not only do I think you should stay away from Mexico, I find little reason not to be short Mexico outright,” notes J.C. Parets of Eagle Bay Capital. “Right now, based on everything I see out there, the only positives that I see here are a potential short-term oversold bounce that I would sell aggressively right into.”

Problematic for EWW’s near-term outlook is the fact that investors seem to be glossing over political and energy sector reforms initiated in Mexico last year and the prospect of slightly faster GDP growth in the U.S. this year. Put simply, EWW has not responded to those headlines and the ETF has been a mess compared to U.S. stocks, which Parets points out.

“When we’re looking to allocate assets into a particular country’s stock market, we want to see strength in that market, or at the very least a sign that strength might be shifting into that market. In this chart below, you can see the exact opposite – Mexico literally crashing relative to US Stocks. This is a chart of $EWW vs $SPY down 30% since the beginning of last year,” said Parets.

Chart Courtesy: J.C. Parets Eagle Bay Capital, LLC

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