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Sizzlin' Returns: Mexico Funds Enjoy Big Gains

With Cinco de Mayo approaching, now is a good time for some appreciation of our neighbor to the south. But investors holding the closed-end (MXE) Mexico Equity & Income Fund (MXE) are already feeling some appreciation.

The fund's 23.68% total market return for the first quarter captured second place among all closed-end funds. More impressively, its 86.15% gain led the pack for the 12 months ended March 31.

If that weren't enough, it earned a 40.95% three-year annualized return, which was bested only by the closed-end (LDF) Latin America Discovery Fund (LDF) and the (LAQ) Latin America Equity Fund (LAQ). And just to round things out, it also placed third among all closed-end funds with a total market annualized return of 20.03% for 10 years.

Obviously, Mexico has become a destination for investment. As if to underscore that fact, Forbes announced earlier this year that Mexican telecom magnate Carlos Slim Helu surpassed Berkshire Hathaway's (BRKA) Warren Buffett to become the world's second-richest person.

Along with the Mexico Equity & Income fund, two others provide essentially pure plays in the Mexican market: The iShares MSCI Mexico (EWW) exchange-traded fund is 100% invested in Mexican investments, while the closed-end Mexico Fund has 92.4% of its portfolio in the country.

For a broader list of funds with Mexican investments, see the accompanying table below. The portfolios of all open-end and closed-end funds as well as ETFs in TheStreet.com Ratings' database were searched for Mexican investments.

The table contains the top 10 open-end funds, top five ETFs and top five closed-end funds, arrayed by percentages of Mexican portfolio holdings.


Funds With Mexican Investments
Name, Ticker, TheStreet.com Ratings Grade No. of Mexican Holdings % of Potfolio in Mexico Value of Mexican Holdings ($Mil.) YTD Total Return (%) 12-Month Total Return (%)
Open-End Mutual Funds
Fidelity Latin American Fund (FLATX) B- 14 36.5 1,136.6 10.40 28.15
DWS Latin America Eq Fund A (SLANX) C+ 9 33.4 263.2 11.23 27.40
T. Rowe Price Latin America (PRLAX) B- 9 28.1 620.7 11.45 32.62
BlackRock Latin America A (MDLTX) C+ 13 25.8 133.0 13.25 32.19
Van Kampen Emerging Markets A (MSRAX) C+ 6 12.7 62.0 7.87 21.19
AIM Trimark Fund A (ATKAX) A+ 3 12.3 5.5 3.29 8.37
Phoenix Insight Emerging Mkt A (HEMZX) C- 6 11.9 29.7 6.76 18.14
Eaton Vance Emerging Mkts A (ETEMX) B 4 11.7 20.5 3.90 10.32
Seligman Emerging Markets A (SHEMX) B- 7 10.3 11.0 7.64 19.00
Franklin Global Communications A (FRGUX) B- 2 9.9 8.7 9.08 18.60
Exchange-Traded Funds
iShares MSCI Mexico (EWW) A 24 100.0 1,202.8 10.15 43.43
iShares S&P Latin American 40 (ILF) A 9 35.8 545.5 13.16 31.97
BLDRS Emerging Market 50 ADR (ADRE) B- 5 15.2 41.7 6.86 23.56
iShares MSCI Emerging Markets (EEM) B- 19 7.2 1,094.2 7.96 19.69
Vanguard Emerging Markets ETF (VWO) B+ 24 6.1 773.9 7.90 17.56
Closed-End Funds
Mexico Equity & Income Fund (MXE) B 31 99.2 85.9 48.67 114.65
Mexico Fund (MXF) A+ 27 92.4 597.8 1.44 37.88
Latin American Discovery Fund (LDF) B 7 28.7 76.3 6.09 38.14
Herzfeld Caribbean Basin Fund (CUBA) B- 40 14.8 2.2 -27.36 53.41
Morgan Stanley Emerging Markets (MSF) B- 7 8.9 51.7 3.43 28.04
Data as of April 27, 2007
Source: TheStreet.com Ratings and Bloomberg

The results are impressive. Of the 20 funds in the table, 16 have TheStreet.com Ratings' buy grades, with four in the A range, including two with the highest mark of A+.

A dozen also qualified as buy recommendations with grades in the B range, and the remaining four funds in the table were rated as holds with marks in the C range. No grades in the D and E ranges are to be found, which would designate them as sell recommendations.

It's worth taking look at a list of popular Mexican investments held by U.S. funds (below). It shows the number of funds holding each security as well as the cumulative value of the funds' positions in it. The table reflects the combined holdings of open-end mutual funds, closed-end funds and ETFs. In total, 759 U.S. funds hold $344.4 billion in 89 Mexican investments.

Favorite Mexican Investments of U.S. Funds
Name Ticker No. of U.S. Funds Holding* Value of U.S. Funds' Holdings ($Mil) *
Top Mexican Holdings
By All Types of U.S. Funds:
America Movil SAB de CV AMX 360 11,457.7
Grupo Televisa SA de CV TV 214 3,801.1
Cemex SAB de CV CX 148 3,756.6
Telefonos de Mexico SAB de CV TMX 114 2,426.9
Fomento Economico Mexicano Sab FMX 160 2,057.9
Wal Mart de Mexico SA de CV WMMVF 132 2,036.4
Grupo Financiero Banorte 70 1,137.2
Cementos de Mexico SA de CV CXMSF 30 884.4
Corporacion Geo SAB de CV 43 619.3
Grupo Aeroportuario Del Pacifi PAC 57 506.8
Grupo Modelo SA de CV 48 500.9
Kimberly Clark De Mexico Sab D 47 477.0
Grupo Mexico SA 46 466.5
Desarrolladora Homex SA de CV HXM 43 419.8
Consorcio Ara SA de CV 36 352.4
Industrias Penoles SA 15 322.1
Grupo Aeroportuario del Surest ASR 36 299.7
Fomento Economico Mexicano Sa 6 229.2
Empresas ICA SA de CV ICA 32 219.9
Coca Cola FEMSA SAB de CV KOF 34 197.7
Grupo Carso SA de CV 20 194.4
Controladora Comercial Mexican 30 167.8
Emboteladoras Arca 14 102.4
Sare Holdings SA de CV 10 99.8
Grupo Continental SA 12 90.5
Summary by Type of Fund:
U.S. Open-End Mutual Funds
85 Mexican Investments in 710 Funds 29,576.5
U.S. Exchange-Traded Funds
27 Mexican Investments in 8 ETFs 3,665.4
U.S. Closed-End Funds
41 Mexican Investments in 41 funds 1,199.2
All U.S. Fund Mexican Holdings
89 Mexican Investments in 759 funds 34,441.1
* Combined holdings of U.S. open-end, closed-end and exchange traded funds.
Source: TheStreet.com Ratings

The favorite Mexican holding of U.S. funds is wireless telecom operator America Movil SAB de CV (AMX) (AMX), controlled by Slim. The $11.5 billion combined value of its holdings by 360 U.S. funds in the U.S. is triple the total of U.S. fund investments in the next most popular Mexican security.

Slim also controls the fourth most popular Mexican investment destination of U.S. funds: Telefonos de Mexico SAB de CV (tmx)(TMX). Commonly known as Telmex, it is held by 114 U.S. funds, which hold $2.4 billion worth of its stock.

The sixth most popular target for U.S. funds is Wal-Mart de Mexico SA de SV (WMMVF). Unlike the U.S. Wal-Mart (WMT) stock, which has not been a standout performer in recent months, the Mexican Wal-Mart has been rewarding its owners with growth-stock-like performance.

Considering that this is early May, the 11th most popular Mexican investment of U.S. funds should not be neglected. Slightly more than a half-billion dollars' worth of Grupo Modelo SA de CV is held by 48 U.S. funds. Its most popular product, Corona cerveza, is a beer destined to be consumed in generous quantities on Cinco de Mayo.

Richard Widows is a financial analyst for TheStreet.com Ratings. Prior to joining TheStreet.com, Widows was senior product manager for quantitative analytics at Thomson Financial. After receiving an M.B.A. from Santa Clara University in California, his career included development of investment information systems at data firms, including the Lipper division of Reuters. His international experience includes assignments in the U.K. and East Asia.

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