Latin American stocks and exchange traded funds are rebounding nicely this year, transforming from emerging markets laggards to leaders on the back of surging commodities prices. However, some of the region’s single-country ETFs remain overlooked, particularly as global investors pay renewed attention to Brazil, Latin America’s largest economy.
Up more than 26% year-to-date, the iShares MSCI All Peru Capped ETF (NYSEArca: EPU) still dwells in the overlooked category. EPU is reflective of Peru’s status as a major miner of gold, silver and copper. The ETF devotes 46.4% of its weight to the materials sector and another 30.1% to financial services stocks. No other sector commands more than 8.8% of the ETF’s weight.
EPU has come a long way from struggling amid lower gold and silver prices (Peru is a major producer of both metals) and wondering about Peru’s market classification.
Index provider MSCI had previously warned that Peru was in danger of losing its emerging markets status and being demoted to the frontier markets designation. However, earlier this month, MSCI confirmed it is keeping Peru in the emerging markets group. The index provider did say that risks remain to Peru’s retention of emerging markets status.
“MSCI warned earlier in mid-August that Peru could be downgraded to frontier market status as only three securities from the country had met the size and liquidity requirements for emerging market status,” according to Emerging Equity.[related_stories]
For investors looking for exposure to Peruvian stocks, EPU is essentially the best game in town because of Peru’s often scant weight in traditional emerging markets indexes.
“Peru is one of a number of ‘lost countries’ that are small fish in big ponds. Others include Greece in the emerging-market bucket and Ireland and Israel in developed markets. Such countries slip through the cracks and as such are not really inside most investors’ portfolios. This probably explains why EPU has more than $166 million in assets–which includes $28 million in new cash this year–despite being such an obscure single-country ETF,” according to Bloomberg.
Peru’s central bank has been raising interest rates and is expected to do so several more times this year, though market observers view that as a positive.
iShares MSCI All Peru Capped ETF