Post-Election, Keep an Eye on Mexico ETFs
After Monday, there will be just 15 trading days left before the 2012 U.S. presidential election. With the polls still tight, investors are understandably wondering how to prepare for either outcome, reelection for President Barack Obama or an upset by Republican challenger Mitt Romney.
Analysts have been quick to highlight sector ETFs that could benefit from either result. While instructive, those ideas usually are not surprising. For examples, many have said financials will pop if Romney wins whereas a fund such as the Health Care Select Sector SPDR (NYSE: XLV) stands to benefit if President Obama is re-elected.
Investors looking for global ETFs that could be impacted by the election results need not look far. Those funds with heavy exposure to Mexico could be impacted by the 2012 U.S. election. As the Financial Times notes both President Obama and Romney seem to be focusing on the black markets associated with Mexico, drugs and illegal immigration, at a time when Mexican companies are investing in bulk in the U.S.
Tired political rhetoric also obfuscates the fact that Mexican equities are soaring this year. The iShares MSCI Mexico Investable Market Index Fund (NYSE: EWW) is up 25.3 percent year-to-date compared to a 14.6 percent for the SPDR S&P 500 (NYSE: SPY).
Since EWW, which has almost $1.4 billion in assets under management, debuted in the first quarter of 1996, there is a track record with which to work in assessing the ETF's post-U.S. election performances. Immediately following President Bill Clinton's 1996 re-election, EWW was trading around $11.38. Ninety days later, the ETF was higher by $1.
There are some things to consider with EWW and President Clinton. He was a supporter of NAFTA and popular among Latino voters. Not to mention, U.S. equities performed well for most of his eight years in office. By the time the 2000 election rolled around, EWW had gained about 33 percent from its February 1997 levels.
The 2000 election was obviously historic due to the fact that winner was not readily apparent on Election Night, so over the following 90 days, EWW traded lower. President George W. Bush carried just 35 percent of the Latino vote in that election. However, his previous job as governor of Texas and desire to improve his standing with Latinos in 2004 may have been two catalysts that helped EWW gain almost 50 percent by the end of his first time.
President Bush garnered 44 percent of the Latino vote in 2004. Whether or not that had anything to do with EWW tripling from November 2004 to May 2008 is certainly up for debate. EWW would plunge during the global financial crisis and by the time of the 2008 presidential election, the ETF had merely doubled from late 2000.
President Obama's popularity with Latinos is debatable as well, but polls indicate that demographic will begrudgingly vote for him before heaping praise on Romney. Those polls show a split on par with Gore/Bush in 2000 awaits (roughly two-thirds to Obama and the remainder to Romney.)
From its 2009 bottom, EWW has nearly quadrupled. Again, attributing that kind of move in an emerging markets ETF to any U.S. politician is tricky business.
What is clear is that EWW has been a stellar performer this year and its good times can continue regardless of which candidate wins on November 6. Manufacturing jobs are departing China in favor of Mexico and that likely has little to do either U.S. party's policies. In other words, the candidate that will do the most to boost trade with Mexico and bolster the country's domestic economy will be the bigger benefit to EWW.
Speaking of Mexico's domestic economy, wages are rising, as the FT reported, giving a lift to the country's growing middle class. GDP growth could touch five percent this year. Those catalysts could make the EGShares Emerging Markets Consumer ETF (NYSE: ECON) and the EGShares Emerging Markets Domestic Demand ETF (NYSE: EMDD) compelling bets. ECON allocates 19.6 percent of its weight to Mexico and the country accounts for almost 25 percent of EMDD's weight.
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