Investors Really Hate The Mexico ETF

This is how bad things have been in 2015 for Latin American stocks and the relevant exchange traded funds trading in the U.S.: Of the single-country ETFs tracking Latin American economies, the Global X MSCI Argentina ETF ARGT has been the best performer this year. ARGT, the lone dedicated Argentina ETF, is down almost 5.1 percent.


As has been widely noted, the iShares MSCI Brazil Capped ETF EWZ has been one of the worst offenders among Latin America ETFs. Benzinga reported earlier this month that there is weeping corruption probe into Brazil's state-controlled oil giant Petroleo Brasileiro SA Petrobras PBR, which is one of EWZ's largest holdings. That probe has ensnared Brazilian President Dilma Rousseff. 


Then there is Vale SA VALE, another large EWZ holding, trading at levels that auger a reverse split. Add to all that the tumbling real, one of the emerging world's worst performing currencies.


Yet even with all that, ETF investor dislike the iShares MSCI Mexico Capped ETF EWW nearly as much as they dislike EWZ. In an article published earlier this week, Bloomberg reported in reference to EWW, “Traders have pulled $840 million from the nation’s largest exchange-traded equities fund this year, the biggest outflow among developing nations.”


Mexico's economy shares ominous traits with Brazil, including being pinched by slack commodities demand and a currency that has recently touched record lows against the U.S. dollar.


As of Dec. 15, EWW's year-to-date outflows stood just below $816 million, according to data. That compares with nearly $885 million in lost assets for EWZ. A flows discrepancy of less than $70 million between two ETFs, particularly sizable funds such as EWW and EWZ, usually is not alarming. However, the fact that EWW's 2015 are nearly on pace with EWZ's could be viewed in a negative light for a simple reason: The Mexico ETF's year-to-date loss of 13.3 percent is less than half the 37.7 percent loss by the Brazil fund. 


EWW has outperformed the iShares MSCI Chile Capped ETF ECH by 700 basis points this year and the Mexico ETF's loss is less than a third of that incurred by the Global X MSCI Colombia 20 ETF GXG. However, ECH and GXG have combined for 2015 inflows of just over $34 million.


EWW “has lost 49 percent of its total assets this year, compared with a 35 percent decline for the firm’s developing-nation fund,” according to Bloomberg.


One reason investors have departed the Mexico ETF is valuation. While investors keep hearing emerging markets inexpensive, that is not the case with EWW, which trades at triple the earnings multiple of the MSCI Emerging Markets Index.

Posted In: NewsShort IdeasEmerging MarketsEmerging Market ETFsIntraday UpdateMarketsTrading IdeasETFs

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