The Mexican peso has been the worst performing currency this year. Nevertheless, investors interested in Mexico’s markets can utilize peso-hedged exchange traded funds to capture any underlying strength, without the currency risk.
The iShares MSCI Mexico Capped ETF (NYSEArca: EWW) has declined 3.8% year-to-date. However, factoring out the depreciation in the peso, the db X-trackers MSCI Mexico Hedged Equity Fund (NYSEArca: DBMX) has returned 1.3% so far this year.
ETF investors also more options available with the recently launched iShares Currency Hedged MSCI Mexico (NYSEArca: HEWW), which also holds the same exposure as EWW but hedges rate risk with cash forwards. [iShares Unveils Massive Expansion to Currency Hedged Suite]
The peso touched an intraday low of more than 15.83 to the USD on Thursday, its lowest since the currency’s revaluation in 1993, the Financial Times reports.
As an oil exporter, Mexico’s currency has been hit by the falling crude oil prices – ETF investors should keep in mind that while Mexico has a large oil industry, none of the country-specific ETFs include exposure to the sector. Additionally, the peso may have also weakened in anticipation of the U.S. Federal Reserve’s eventual interest rate hike.
Bernd Berg, currency strategist at Société Générale, argues that the underperformance in the peso currency could continue, projecting the peso to fall toward 17 against the dollar.