First of all, I like charts. I like back-tests too. So, let's take a look at how the iShares MSCI Mexico Capped ETF (NYSEARCA:EWW) has performed against the SPDR S&P 500 Trust ETF (NYSEARCA:SPY) over the past 20 years.
I think most people who put some thought into their investments can look at this information from several different angles. I look at this from a long-term accumulation investment perspective, because I have a minimum 15 year investment horizon. Although, I am not a short-term or swing trader, I believe there could be a case made for that type of investment too. Here are a few things that stick out to me when viewing this chart:
- Low correlation to the U.S. stock market (0.75).
- 20 year CAGR is 83 basis points higher than SPY.
- If EWW only retraces half way back to it's March 2013 highs, that would be a 35% gain from it's current price of $43.70.
- Higher volatility. Volatility can be a friend to the long-term value accumulator.
- If EWW were to drop another 15%, it would still look like a good long term investment.
- High expectancy investing attributes. See here for expectancy investing philosophy.
- (Credit: back-testing performed at portfoliovisualizer.com)
Certainly, one can easily make the case as to why not to invest in the most popular Mexican equity ETF. There are many dark clouds to acknowledge when considering an investment in this area of the world. Here are just a few:
- Mr. Trump has been elected president of the U.S.
- EWW has fallen over 41% since March 2013 (Bear Market).
- The Mexican peso is down.
- The Mexican 10 year bond yield is up.
- Oil prices are low.
- And on, and on, and on...
So, where is the good news. Why invest your hard-earned dollars in someplace with such a bleak outlook? Well, each one of the reasons for not to invest in Mexico, stated above, can easily be restated as reason to invest in Mexico.
- Mr. Trump has already begun to back pedal some of his rhetoric on the wall and tariffs. He has also made some efforts towards economic diplomacy with Mexican leaders and business people.
- If EWW only retraces half way back to its March 2013 highs, that would be a 35% gain from its current price (not including its current 3% dividend yield).
- Yes, the Mexican peso is down. That should make things cheaper to export from Mexico.
- Yes, oil prices are low, but they could go up. Also, the Mexican equity market is mostly detached from the oil market.
- Additionally, you can usually get the best price on something when things look like they are going from bad to worse. Wouldn't you have loved to invest in the U.S. stock market in March 2009? I'm sure it didn't feel good to be investing there at that time.
As I stated at in the beginning, I like charts, and I like back-testing potential areas for investment. So, here's a chart comparing Mexico, SPY, and the iShares MSCI Emerging Markets ETF (NYSEARCA:EEM):
Although this is a shorter time-frame than just comparing Mexico with SPY, you can still see the low correlation to SPY and potentially a higher investment expectancy. While I do invest in broad Emerging Market funds, I don't think they are discounted deeply enough yet to warrant an investment at this time. Also, I prefer the WisdomTree Emerging Markets High Dividend ETF (NYSEARCA:DEM) over EEM.
Conclusion: The long-term investor would be wise to consider putting some of their foreign, international, or emerging markets funds to work in Mexico now or in the near future. The value investor should consider the expectancy investment opportunity that lies within the Mexico ETF.
Deep Value ETF Accumulator quote:
If you are shopping for common stocks, choose them the way you would buy groceries, not the way you would buy perfume.
- Benjamin Graham
Disclaimer: I am long the iShares MSCI Mexico Capped ETF EWW. I am not an investment adviser. I am a retired U.S. Air Force crew chief and a metrology technician somewhere deep inside the Arctic Circle. Do your own due diligence please. I am also not a "pumper". I'm not trying to pump this ETF. I am just sharing my observations. I will be long EWW whether or not others concur with me.
Thanks for reading, Micah McDonald, aka, The Deep Value ETF Accumulator
Disclosure: I am/we are long EWW.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.