Why I'm Buying the Mexico ETF (EWW)

| About: iShares MSCI (EWW)

Though they saw a nice bounce yesterday, foreign markets have been in retreat since early May, so this suggestion may come as somewhat contrarian: I think it's time to get back into foreign.

First, every portfolio should have a decent exposure (20-30%) to the foreign equity markets. Not only does this reduce the overall risk in your portfolio, but it also provides opportunities for strong upside moves, as we have seen some emerging markets experience over the last several years.

Where I expect to get the most bang for my buck over the next 3 years? Mexico. I don't live in Mexico, nor do I work in Mexico, nor do I know any great Mexican investors, so I'll participate in Mexico through a somewhat neutral fund, iShares for Mexico (NYSEARCA:EWW). Why so much conviction in Mexico, when everyone else is jumping on the Korean, Japanese, Brazilian, or Indian markets?

Several reasons:

1. The US is still a net outsourcer of manufacturing and service labor. Historically, Mexico has been a key manufacturing source, but some of this investment has moved further overseas, to China, Asia and some Eastern European markets. Working in a company that has begun moving most of its manufacturing to Mexico, I believe that other industries in the US will begin to again recognize the advantage of growing investments in our neighbors to the South. Quick access to manufacturing plants, better control over quality, more assurances of IP-protection and trading relations ease will increase the value that a plant in Mexico brings over one in SE Asia.

2. Mexico has historically been a low source of outsourced service labor. As the Hispanic population continues to grow in the US, I believe that many will begin to address, politically and financially, the inequities in the education system in Mexico. This will improve the labor pool and for the reasons outlined in '1', increase US investment in Mexico.

3. As the Hispanic population continues to grow in size and strength in the US, I believe this will create sizable interest in Mexican investments and real estate. This will improve the overall economy of Mexico, spurring further growth.

I expect that this will lead to a renewed strength in the IPC, and expect the IPC to put in a annual growth rate of 30% over the next 3 years, rallying from its current level of 18,814 to over 40,000.