Mexico might be often associated with drug-related crimes, but
the country's steady economic growth is paving the way to some
solid returns for investors tapping into ETFs such as the iShares
MSCI Mexico Investable Market Index Fund (NYSEArca:EWW) or even
accessing the country through fixed-income funds like Pimco's Total
Return Bond ETF (NYSEArca:BOND).
This week, Mexico reported second-quarter GDP growth of 4.1
percent year-on-year-its 10
consecutive quarter of GDP growth and the first since President
Felipe Calderon was elected to office-as domestic consumption and
spending related to local elections helped offset a drop in
exports, the Wall Street Journal reported.
Higher employment rates and growing credit also played a part in
the country's growth, which seems on pace to meet the government's
projection of 3.5 percent expansion for 2012. That growth pace is
nearly twice the projected growth for the U.S., and is even ahead
of Brazil's GDP expansion that many expect to come in around 2.5
percent in 2012.
EWW is currently the only ETF focused solely on Mexican
equities, aside from a bull-and-bear pair from ProShares, and the
fund is already up some 15 percent year-to-date, coming ahead of
the S&P 500 Index. iShares' fund, which has more than $1.22
billion in assets gathered since its 1996 inception, is in fact one
of the best-performing ETFs of all time, having posted annualized
total returns of more than 17.6 percent, on average, for the past
"Mexico has a great economy and a very bad PR problem," Emerging
Global Advisor's President Robert Holderith said in a recent
interview with IndexUniverse. "It is seeing 4-4.5 percent GDP
growth steadily, it has a huge booming middle class, and yet the
only headlines you read are on drug-related crimes."
"The drug problem there is more of a headline problem than an
economic problem, but people are slowly beginning to understand
Mexico's economic importance," he added.
Domestic Demand Is Key Driver
Holderith emphasized that driving economic growth in many of
these emerging markets such as Mexico today is booming domestic
consumption rather than a focus on exports.
Mexico's second-quarter growth of its services sector, indeed,
outpaced industrial output expansion, coming in at a 4.4 percent
year-on-year gain versus industrial's 3.6 percent uptick, according
to the WSJ.
Holderith is the man behind a regional-in-focus ETF that hones
in on demand sectors and holds Mexico as its largest country
The EGShares Emerging Markets Consumer ETF (NYSEArca:ECON),
built around the Dow Jones Emerging Markets Consumer Titans Index,
is designed to capture domestic demand across emerging markets, and
Mexico represents roughly 20 percent of the fund's exposure.
ECON is up 6.6 percent year-to-date, and about a third of those
gains came in the past month alone. The fund has gathered $416
million in assets in its two-year existence.
While ECON is all about domestic demand, EWW also carries a
heavy consumer-based focus with an allocation to segments of the
economy that are directly linked to Mexico's domestic demand
story-nearly a third of its portfolio is allocated to consumer
staples and some 23.5 percent to telecommunications.
BOND Also Benefits From Mexico's Economic
A booming Mexican economy also bodes well for fixed-income
strategies like Bill Gross' BOND ETF, which is perhaps the
fastest-growing fund ever in terms of asset gathering, attracting
$1.7 billion in less than six months.
BOND is heavily focused on U.S. debt, but the funds'
investment-grade debt portfolio holds Mexican debt as its
second-largest allocation by market value at nearly 9 percent of
In the past three months, BOND has seen net asset value total
returns of 4.5 percent after fees, according to Pimco data, and has
rallied 7.6 percent year-to-date, although it's important to note
here that BOND was only launched in March.
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