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Preference for Mexico ETF has Investors Missing out on Brazil


As the largest exchange traded fund tracking Latin America’s largest economy, the iShares MSCI Brazil Capped ETF (EWZ) receives plenty of attention in the financial press, blogosphere and other outlets.

Recently, attention and praised heaped on EWZ has been well deserve. The ETF entered Friday with an 8.6% year-to-date gain, making it easily the best-performing single-country fund tracking a Latin American nation. Up over 19% in just the past month, EWZ is now the second-best of the four major BRIC single-country ETFs this year, trailing only the WisdomTree India Earnings Fund (EPI) . And for good measure, EWZ has been rising on days when U.S. stocks falter. [Brazil ETFs Standout]

None of that has been enough to keep investors from preferring the iShares MSCI Mexico Capped ETF (EWW) over EWZ and other Brazil funds.

“The gap between Mexican and Brazilian flows climbed to $570 million during the first seven business days of April, with $148.7 million of inflows to Mexico and $421.3 million in Brazil outflows,”  according to Bloomberg.

Translation: Investors have pulled money from EWZ and other Brazil ETFs this month (and this year) while devoting capital to the lagging EWW. In the past week, while investors have pulled money from EWZ, the ETF is up more than 4%. EWW is lower by 1%. The lone Mexico ETF is more than 4% this year, making it the worst-performing LatAm single-country fund. [Mexico ETF Losing Ground]

Due to its proximity to and trading relationship with the U.S., Mexico has been a favored destination of conservative emerging markets investors.  The allure of Mexican equities and EWW was expected to increase after the country initiated political and energy sector reforms last year, but although Latin America’s second-largest economy is expected to post GDP growth superior to that of the U.S. and Brazil this year, EWW has tumbled 15.3% over the past year. [South of the Border Slump]

EWZ has soundly outperformed EWW this year even as Standard & Poor’s lowered Brazil’s credit rating to the lowest investment grade while Moody’s Investors Service raised Mexico’s rating. Year-to-date, EWZ has lost $573.4 million in assets while EWW has added almost $307 million.

iShares MSCI Mexico Capped ETF