An Index That Improves Diversification in Mexican Equity Portfolios

One of the challenges that keeps investors from diving head first into emerging markets (EM) is the need for more diversification, particularly when it comes to single country-focused equities like in the case of exchange-traded funds (ETFs) targeting Mexico. However, global index provider FTSE Russell developed an index, the FTSE BIVA index, that adds more diversification via small-caps and real estate investments trusts (REITs).

“The FTSE BIVA Index is designed to reflect the performance of liquid Mexican companies, which are constituents of the FTSE Mexico All Cap Index,” the FTSE Russell website stated. “Using the FTSE Global Equity Index Series (GEIS) as a base, the FTSE BIVA Index applies a higher liquidity threshold to achieve accurate and investable universe coverage while maintaining consistency and integrity. Index constituents are weighted by market capitalization, and each security is tested for liquidity at the semi-annual index reviews in March and September.”

With help from a partnership with Bolsa Institucional de Valores (BIVA) in Mexico, the index gives investors a more accurate view of the Mexican market.

“Through the FTSE BIVA Index, FTSE Russell provides the insights and tools necessary for investors to gain an accurate view into the most liquid tier of the Mexican market, providing investors with an easily understandable framework for analyzing equity portfolios and managing funds based on active or passive mandates,” the site added. “The FTSE BIVA Index is suitable for benchmarking purposes and as tools in the creation of a wide variety of financial products, such as index-linked funds, exchange traded funds (ETFs) and derivatives contracts. Real time and end of day data is available from Bloomberg (FTBIVA) and Thomson Reuters (.FTFTBIVA). Price, total, and net of tax values are available for the Index.”

“The challenge for investors seeking broad diversification across Mexican equities has historically been to have enough liquidity,” said Maria Ariza, CEO, BIVA MX. “By establishing minimum liquidity thresholds, the new FTSE BIVA Index helps solve the diversification challenge as well as the liquidity challenge.”

Investors looking to get single country exposure to Mexico can look to ETFs like the iShares MSCI Mexico Capped ETF (NYSEArca: EWW) or for more juice, the Direxion Daily MSCI Mexico Bull 3X ShsETF (NYSEArca: MEXX). However, investors who can sense an opportunity in the pullback can try their hands at those ETFs.

For a Latin America-specific ETF trade, consider the Direxion Daily Latin America Bull 3X ETF (NYSEArca: LBJ). LBJ seeks daily investment results equal to 300% of the daily performance of the S&P Latin America 40 Index. The index itself is a float-adjusted market capitalization weighted equity index of issuers drawn from five major Latin American markets: Brazil, Chile, Columbia, Mexico, and Perú.

For more market trends, visit ETF Trends.