An appreciating U.S. dollar may have some investors rearranging their allocation to riskier emerging market exchange traded funds (ETFs) in favor of markets with greater ties to the U.S. economy. A person only needs to look south of the border to find one of the United States’ most key trading partners.
Mexico’s markets and iShares MSCI Mexico Investable Mkt Idx (NYSEArca: EWW) have held up quite well during global downturn, comments Don Dion for TheStreet. Trade diversification and expansion are cited as the main reasons for the country’s well-being.
In addition, Mexico was bolstered by its access to commodities – the country is the third-largest supplier of oil to the United States and the world’s 10th-largest producer. Rising oil prices have supported the government’s revenue, which makes up more than a third of total revenue. Mexico is also an exporter of silver, copper, fruits, coffee, cotton and other commodities. [Why Mexico is doing well.]
EWW has around a third of total assets allocated to its top three holdings. Its concentrated positions include America Movil (NASDAQ: AMOV), Latin America’s largest cell-phone company, CEMEX (NYSE: CX), one of the largest cement makers in the world, Wal-Mart de Mexico and Grupo Financiero Bonarte. The fund weights its holdings by market capitalization – it has higher allocations in large companies with 30% of assets in giant-cap firms.
Furthermore, the appreciating Mexican peso has helped EWW. Also, a strengthening U.S. economy will support the peso since 80% of Mexico’s exports go to the United States. [Will complacency slow Mexico down?]
Potential investors should know that the fund, like most emerging markets, is quite volatile.
For more information on Mexico, visit our Mexico category.
- iShares MSCI Mexico Investable Mkt Idx (EWW): up 54.7% year-to-date
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.