There is a lot to like when it comes to Mexican sovereign
While Latin America's second-largest economy is rated BBB by
Standard & Poor's, just above junk status, there is little
chance that rating will be downgraded anytime soon and the yields
on U.S. Treasuries pale in comparison to their Mexican
For example, the yield on 10-year Mexican sovereigns
currently resides at 4.95 percent
. Home to tame inflation, favorable tax rates and a new
reform-minded president, it is not surprising that some
noteworthy investors are bullish on Mexican
Perhaps investors should feel the same way about Mexican
corporate debt. As one example of a reason why Mexican corporates
are worth a look, Standard & Poor's recently revised its
outlook on Mexico's state-run oil giant Petróleos Mexicanos, or
Pemex, and that could prompt a credit rating upgrade sometime in
the next 18 months.
Pemex "also serves as a useful case study for why we are
optimistic about Mexican and emerging market corporate debt as a
complement for more traditional corporate credit instruments of
U.S. companies," said WisdomTree Portfolio Manager Rick Harper in
a new research note.
Harper also notes the improving U.S. economy and government
reforms initiated by President Enrique Peña Nieto as potential
catalysts for Mexican corporates. At the ETF level, investors
have at least one credible choice for gaining exposure to
corporate debt issued by Mexican companies, that being the
WisdomTree Emerging Markets Corporate Bond Fund (NASDAQ:
EMCB, which is nearly 13 months old, has almost $128 million
in assets under management. More importantly, the first ETF to
serve as a pure play on emerging markets corporate bonds
allocates almost 20.2 percent of its weight to Mexico. That makes
Mexico the third-largest country weight in EMCB behind Brazil
(26.33 percent) and Russia (21.96 percent).
Harper points out that EMCB's weight to Mexico is nearly
triple that of the ETF's benchmark and almost twice that of the
JPMorgan EMBI Global Index
While Mexico is EMCB's third-largest country weight,
individual Mexcian issues represent two of the ETF's top three
holdings. Overall, EMCB has 33 holdings, five of which come
courtesy of Mexican issuers,
according to WisdomTree data
More than 60.5 percent of EMCB's holdings are rated BBB and
another 8.1 percent are rated A. The ETF's effective duration is
6.05 years with an average yield to maturity of 4.56 percent.
When EMCB debuted in March 2012, some critics thought the ETF
was too narrowly focused to hold broad appeal for investors.
Clearly, inflows to the fund have said otherwise. Additionally,
EMCB's success prompted the creation of not one, but two copycat
However, the iShares Emerging Markets Corporate Bond Fund
(BATS: CEMB) and the BofA Merrill Lynch Emerging Markets
Corporate Bond ETF (NYSE:
) are both far smaller than the WisdomTree offering and neither
offer the exposure to Mexico that EMCB does. For example, the
iShares Emerging Markets Corporate Bond Fund has a weight of just
8.62 percent to Mexico.
For more on Mexican bonds, click
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