The iShares MSCI All Peru Capped ETF (EPU) is often overlooked compared to rival single-country Latin America exchange traded funds, such as the iShares MSCI Mexico Capped ETF (EWW) and the iShares MSCI Brazil Capped ETF (EWZ).
With metals prices firming, investors may want to give the materials-heavy EPU, the lone Peru-specific ETF, another look. EPU has outperformed EWW this year, emerging as a steady contributor to the rebound in Latin American equities as some industrial and precious metals prices have bounced back.
Peru is the world’s third-largest silver producer and one of the largest gold and copper producers. EPU is reflective of the Peruvian economy’s leverage to metals exports and production with a massive 50.3% weight to the materials sector. That is well above the 27.8% allocated to financial services, EPU’s second-largest sector weight. [Silver Lifts Peru ETF]
“Peru’s mining industry is huge. While the country ranks 47th in terms of gross domestic product (GDP), falling between Algeria and Kazakhstan, it ranks fifth in the production of gold, and third in silver and copper. Last year, the companies in the Lima General Index that mine metals helped drag it down 25 percent; this year, they’ve helped it gain 10 percent,” reports Eric Balchunas for Bloomberg.
It is worth noting that Peru is not a one-trick pony dependent entirely on its mining industry.
“Peru has decent economic fundamentals. The inflation rate is 2 percent, the growth in its gross domestic product is 5 percent, and its debt represents just 18 percent of its GDP,” notes Balchunas.
“At 15.2x 2014 forward earnings, Peru’s price/ earnings ratio (p/e) is well below that of Mexico and Colombia (18.5x apiece), but counter-intuitively above that of Brazil (11.4x) and Latin America (13.5x) – both of which have been oddly outperforming Peru. Furthermore, even though Peru’s p/e exceeds both its historical average (10.5x) and record low (2.8x), it falls short of its all-time high by 13.3 points, leaving considerable room for expansion,” said S&P Capital IQ in a research note out earlier this month. [Peru ETF Tries to Keep Up With LatAm Rivals]
Investors looking for Peru exposure should EPU is really the best game in town, though the Global X FTSE Andean 40 ETF (AND) features a 16.7% weight to Peruvian equities. Multi-coun try Latin America ETFs, like the iShares Latin American 40 ETF (ILF) feature scant exposure to Peru.
iShares MSCI All Peru Capped ETF
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of ILF.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.