Mexico’s Economy, Top ETF Look Attractive

With many manufacturers relocating to Mexico from China, the Mexican economy has been growing significantly and is likely going to continue to do so in the coming months and years. As a result, Mexican stocks are rallying and will probably keep climbing for the foreseeable future, creating great opportunities for investors.

Last year, despite lingering coronavirus constraints, the Mexican economy grew 3.1%. And the country’s government expects another 3% increase this year, as the economy’s prognosis has rebounded after it decelerated to a 0.5% gain in the fourth quarter from a 0.9% advance in the previous quarter.

Supply chains are changing

One trend that’s helping boost the country’s GDP is the “nearshoring” phenomenon. That refers to the relocation of many factories from China to countries that are much closer to the huge U.S. market.

Among the reasons for this trend are the intense difficulties that many companies experienced with their supply chains in recent years and China’s higher labor costs. Other factors are increased geopolitical tensions between the U.S. and China, the tariffs that America imposed on the world’s second-biggest economy, and signs of increasing discontent among Chinese workers.

Mexico borders the U.S. and has a free trade agreement with America. as a result, the neighbor has been one of the most popular places for companies seeking to launch factories near the U.S.

Mexican stocks have been rallying

The iShares MSCI Mexico ETF (US:EWW) was the best-performing single-country exchange-traded fund in the first quarter, as it climbed 13%. EWW is the largest ETF dedicated to investing in Mexican stocks.

Moreover, data compiled by Fintel shows that, as of April 21, the ETF had a high momentum score of  88.74. That score, which ranks companies on their six-month momentum, indicates that EWW is number 6,758 in terms of the strength of its momentum out of 43,850 names ranked by the website.

Also importantly, the ETF received a high Fund Sentiment score of 73.47. EWW ranked 8,342 out of 36,580 names on that metric. Fintel’s Fund Sentiment score is a proprietary quantitative model that ranks companies based on levels of ownership accumulation.

Given these points, it’s not surprising that the ETF has jumped over 20% this year.

Meanwhile, on April 14, Raymond James bought $30.9 million of the shares, while Jane Street Group rang in with a $29 million purchase on Feb. 15. Other large purchases were made by Natixis, which invested $14.93 million on Feb. 24  and Catalyst/Millburn Hedge Strategy Fund Class, which poured $13.8 million into the name on Feb. 24.

And as of Feb.12, EWW had seen the fifth-most instiutional inflows of any country ETF, fintel.io reported.

EWW portfolio includes Walmart unit and Latam telecom 

The exchange-traded fund tracks the MSCI Mexico IMI 25/50 index. EWW’s largest holding is America Movil (US:AMX), with a 14% weighting. The telecom company provides cellular phone and broadband internet services in Mexico and several other Latin american nations. EWW’s second-largest holding is Grupo Financiero Banorte (US:GBOOY), a Mexican bank, which constiutes 10.75% of the ETF’s assets. Third is Wal-Mart de Mexico (US:WMMVY), Walmart’s (US:WMT)  Mexican subsisiary.

The exchange-traded fund has a dividend yield of 3%. It carries a 0.50% expense ratio, which mean that for every $1,000 you invest, you will pay about $5 a year in expenses. According to ETF.com, equity ETFs average 0.16% expense ratios.

This article originally appeared on Fintel

By Larry Ramer