The iShares MSCI Mexico Capped Investable Market Index Fund
), along with other
with significant exposure to Latin America's second-largest
economy, should be in focus today after Fitch Ratings boosted
Mexico's credit rating to BBB+ from BBB. The Fitch rating, the
third-lowest in investment-grade territory, is comparable to
Moody's Investors Service's Baa1 rating.
Fitch's move follows Standard & Poor's raising its outlook
on its BBB rating of Mexico in March. Not surprisingly, Fitch
cited legal and tax reforms being pushed by Mexican President
Enrique Pena Nieto as a prime reason for its upgrade.
The idea of those reforms, which include labor legislation
that has helped Mexico pilfer
manufacturing jobs from China has had a meaningful impact on EWW.
In the past six months, the ETF has gained 11.5 percent, better
than triple the gains of the iShares MSCI Brazil Capped Index
Investors have taken notice. On November 15, 2012, EWW had
$1.4 billion in assets under management. As of May 8, that number
had almost tripled to $3.16 billion,
according to iShares data
Amid expectations for slower growth, Banco de Mexico
surprisingly lowered interest rates by 50 basis
points to four percent in March
. However, central bank Governor Agustin Carstens said growth
could reach 6.5 percent in the future on the back of the labor
and legal reforms.
Bonds The impact of the Fitch ratings increase on Mexican
a favorite of PIMCO's Bill Gross
, remains to be seen. Mexican 10-years had a yield of 2.52
percent, a 71-basis point premium to the comparable U.S.
Treasurys, as of Wednesday's close, according to Bloomberg data.
That is well below the emerging markets average yield of 4.56
percent seen on sovereign debt just a month ago.
Still, investors have found Mexican sovereigns to be a
compelling asset class and it is one that can be accessed through
The Market Vectors LatAm Aggregate Bond ETF (NYSE:
) allocates 26 percent of its weight to Mexico. Additionally,
five of BONO's top-10 holdings are Mexican issues and 15.6
percent of the ETF's weight is denominated in Mexican pesos. BONO
has grown impressively this year from
$26.1 million in AUM in January
to $47.6 million as of May 8. The ETF has a 30-day SEC yield of
4.41 percent and an effective duration of 6.31 years.
Another Market Vectors fund, the $1.5 billion Market Vectors
Emerging Markets Local Currency Bond ETF (NYSE:
) features a 6.2 percent weight to Mexico with a 30-day SEC yield
of 4.46 percent. EMLC's effective duration is 4.99 years.
Among local currency bond ETFs, the SPDR Barclays Emerging
Markets Local Bond ETF (NYSE:
) does not grab a lot of press. However, EBND is not small with
almost $165 million in AUM and offers decent exposure to Mexico
with a 9.53 percent weight to the country. EBND has a 30-day SEC
yield of 4.43 percent and a modified adjusted duration of 5.07
according to State Street data
For more on ETFs, click
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