By: The ETF Professor, Benzinga Staff Writer
Shares of the iShares MSCI Mexico Capped Investable Market Index Fund (EWW), the lone ETF exclusively devoted to Latin America's second-largest economy, are trading lower by 1.3 percent in early trading Wednesday and the catalyst behind EWW's drop is easy to spot.
The U.S.-listed shares of America Movil (AMX) are off nearly nine percent on volume that is nearly double the daily average after the company reported an 8.2 percent drop in fourth quarter profit. America Movil, Latin America's largest mobile phone carrier, said revenue for the quarter was hampered by currency weakness outside of Mexico.
The company, owned by the world's richest man, Carlos Slim, reported fourth quarter net income of just $1.16 billion, well below the $1.89 billion analysts expected. News of the glum results has taken America Movil's U.S. shares to a new 52-week low and prompted Bank of America Merrill Lynch to downgrade the stock to Neutral from Buy.
All of this ties back to EWW because the fund features a not uncommon flaw in the world of ETFs. That being an excessive weight to just one stock. In the case of EWW, which has $2.32 billion in assets under management, the fund devotes 21.55 percent of its weight to America Movil.
Today's decline for EWW at the hands of America Movil is not the first time the ETF has had to contend with glum news from one of its marquee constituents. In April 2012, the ETF endured some short-term pain after it was revealed Wal-Mart's (WMT) Wal-Mart de Mexico business would be investigated on bribery allegations. At the time, Wal-Mart de Mexico was EWW's second-largest holding with an allocation of about 11.6 percent.
While there are never any guarantees history will repeat, it is interesting to note that investors with fortitude to have bought EWW on the first trading after the Wal-Mart bribery allegations were brought to light, April 23, 2012, have been handsomely rewarded as the ETF jumped more than 21 percent since that day through February 12. Of course, it cannot be forgotten that EWW was about 10 percent lower a month later, so caution is advised in the wake of EWW dealing with America Movil's slack earnings profit.
Still, it is worth noting that EWW is up nearly 20 percent in the past year, sharply outpacing the broader emerging markets universe as measured by the iShares MSCI Emerging Markets Index Fund (EEM) along the way. Year-to-date, EWW has outperformed the comparable Brazil and Peru ETFs.
Wednesday's decline has EWW hovering around its 50-day moving average and should that technical landmark provide support, it could represent a buying opportunity in the ETF as investors again embrace Mexico's buoyant fundamental story.
That story includes solid GDP growth this year and the fact that the economy there has already been benefiting from an influx of manufacturing jobs from China. Rising wages in China have sent some manufacturing jobs to Mexico and due to higher fuel prices, some U.S. firms have favored production of goods in Mexico over China due to the former's proximity to the U.S.
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