Is Mexico the new China?
Until recently, China was the "go-to" manufacturer of choice.
Thanks largely to the country's low wages, companies across the
industrialized world were able to have their products produced
cheaper in China than at home -- or in Mexico.
The advantage known as the "China price" still sends tremors
through hometown manufacturing facilities in much of the West.
But during the past decade the playing field has tilted.
Ten years ago, Chinese wages averaged a quarter of those in
Mexico. These days, according to The Boston Consulting Group,
China's average manufacturing wage tops Mexico's, whenproductivity
differences are taken into account.
Add to that the proximity to the world's largesteconomy -- an
economy that's again showing life -- and the China price advantage
loses even more luster. After all, shipping and travel between the
United States and Mexico can be done at a fraction of the time and
cost of doing business halfway around the world. Cultural barriers,
moreover, are usually less of a hindrance between friendly
neighbors than friendly nemeses.
Now, I'm not saying China is looking over its shoulder just yet
(its economy is expected to grow 8.1% this year, more than double
the still-respectable -- and widely envied -- rate of 3.5% in
Mexico). But I suspect that China can feel something nipping at its
So, viva Mexico! But what's in it for us? How do we individual
investors get a piece of that action?
For that we turn to the
-- astock thatprofit from a strong economy south of the border.
Mexico Fund is aequities listed on the Mexican Stock Exchange.
Most of the rest is invested in issuers listed on the Mexican Stock
Exchange but organized outside of Mexico with a Mexican
Two of Mexico Fund's top holdings in the latter category include
retailer Wal-Mart de Mexico, at 6.5% ofnet assets at year end, and
consumer products company Kimberly-Clark de Mexico, at more than
3.7% of net assets.
'Mexico Fund's single largest holding -- at nearly 11% of net
assets -- is telecom service giant
America Movil (
. Based in Mexico City, American Movil is the largest telecom
provider in Latin America, serving more than 250 million mobile
customers in 18 countries.
When Amy first told her
readers about the Mexico Fund in
, Mexico Fund was trading at $23.94 a share and yielding 10.5%. On
Thursday, Jan. 24, Mexico Fund was 33.2% higher at $31.89, about
the same as the advance in the S&P 500 during the same
What makes Mexico Fund special is itsyield (see more on 'Mexico
Fund's yield in the Q&A section below). Amy's collected about
$1,330 in payouts stemming from her initial 150-share purchase two
and a half years ago. Add it all up -- includingdividend
reinvestment -- and Amy's total return on Mexico Fund comes to 79%
through Thursday, almost double the 41.4% total return of the
Amy reiterated her recommendation of the Mexico Fund in theissue
The Daily Paycheck
, citing the country's growing competitive edge in global
manufacturing along with the expectation of a bigger payout in
In fact, the pace of growth among Mexico's manufacturers rose in
December for the third consecutive month, according to one measure.
Reuters reported earlier this month that the HSBC Mexico
Manufacturing Purchasing Managers'Index rose to 57.1 in December,
from 55.6 in November. The December reading was the highest since
the survey was launched in April 2011, Reuters said.
Is it too late to get in? Let's ask Amy...
The Mexico Fund posted a new52-week high of $33.30 a share on
Tuesday, Jan. 22. Are you still recommending this stock at these
The fund has run up alot in the last couple of months, but it is
still trading at anet asset value (NAV ). When it comes to buying a
closed-end fund such as Mexico Fund, where it trades in
relationship to its NAV can be more important than its price. So I
would continue to recommend Mexico Fund as long as it trades at a
discount to its NAV.
Readers can keep tabs on 'Mexico Fund's net asset value by going
to the websitefunds , including premium/discount information.
You mentioned in the December issue that the Mexico Fund has an
unusual dividend policy.
Yes. The fund sets the dividend for the next year at 10% of the
fund's net asset value on thelast trading day of the current
On Dec. 30, 2011, 'Mexico Fund's NAV was only $23.84 per share.
In the year just ended, 'Mexico Fund's NAV was considerably higher
at $30.81. This means the fundwill be returning to near
double-digit yield territory in 2013 -- a factor that's likely to
drive even more demand for the fund as the word spreads. At week's
end, 'Mexico Fund's yield was about 7.5%
What is it about the Mexico Fund that makes it a prototypical
To maximize income and minimize risk, The
holds three types of income securities. I have a group of steady
income securities that provide stability. I have a group of
securities with fabulous track records for dividend growth
andcapital appreciation . My third group of securities offers high
yields, but with slightly higher capital risk.
The Mexico Fund typifies what I look for when I select a
security for my "High-Yield Opportunities" group. It has a strong
record of funding its lofty dividend with capital gains and income.
The fundamentals are strong and, in my opinion, represent
moreupside potential thandownside risk .
At the moment there are 16 other holdings in the
High-Yield Opportunities real-money portfolio, with an
average yield of 9.4%. To hear a presentation from Amy in
which she discusses her strategy in
The Daily Paycheck
. For the text version,
What else is catching your attention at present, and what are you
The Daily Paycheck
in December 2010, it's been a good environment for almost every
income-producingasset class . But I think we may be entering a
period when interest rate risk will be higher. As a result, I've
started to increase my weight in equities and other asset classes
that have goodappreciation potential. For instance, I recently
increased my holdings in thereal estate sector. I will also start
to trim back on some of myfixed-income holdings. If interest rates
finally start to rise, I want to avoid longmaturity ,investment
grade bonds . These are the bonds that will get pinched the most in
a rising interest.
Action to Take -->
But this will require only minor tweaking on my part. My goal is to
find securities that I can hold -- and reinvest in -- during the
long term. I tend to focus on resilient securities that don't need
a lot of babysitting every time the economic winds shift.
Amy is also the Chief Investment Strategist for
Stock of the Month
, which I most recently profiled in mid-December. Read
about two more of her top picks
Amber Hestla, anoption strategist at ProfitableTrading.com,
justput the finishing touches on an options and income
special report. If you've ever wanted to learn how to
generate income using options, be sure to request a free
copy of the report by clicking here.
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