An appreciating U.S. dollar may have some investors rearranging their allocation to riskier emerging market 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.
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.
Potential investors should know that the fund, like most emerging markets, is quite volatile.
- iShares MSCI Mexico Investable Mkt Idx (EWW): up 54.7% year-to-date
Max Chen contributed to this article.