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The Case for Peru: EPU

NEW YORK ( ETF Digest) -- After a recent series of rises and falls, the MSCI All Peru Capped Index Fund (EPU) has recovered most of its losses and is trading at a healthy $44.87 per share (as of March 14), just 11% below its all-time high of $50.47 in February 2011.

Investors were spooked in June 2011 when the left wing candidate Ollanta Humala won definitively in a runoff presidential election against Keiko Fujimori, the more conservative candidate. The Peruvian stock market lost a record 12.5% on his win, with mining companies seeing some of the biggest losses, while currency and bond markets also dropped.

At any rate, investors seem to have gotten over their fear that Humala would prove hostile to business. He pledged that he would raise taxes on foreign mining companies, not nationalize them, and so far he has held true to his word. The country is not without its share of social problems, not the least of which is a relatively high poverty rate as well as rampant rural unemployment, but the Andean nation's GDP has gone up at a fairly steady rate, rising sharply to $157 billion in 2010.

Politics aside, Peru presents many appealing aspects for potential investors. Like its neighbors Colombia and Chile, Peru possesses great mineral wealth and abundant natural resources.

As one of the world's major gold, silver and copper producers, Peru only stands to benefit from the continuing growth in commodities demand and the corresponding increases in metal prices worldwide. It is the largest producer of silver in the world, the third largest of copper (after Chile and the U.S.), and the fifth largest of gold.

Description: Macintosh HD:Users:jonathan 1:Documents:ETF stuff:ETF digest articles:2012-03-14 Peru:EPUvsGLDvsJJCvsSLV.tiff

Mining is one of the most important industries in Peru, with Materials accounting for 54.6% of EPU's holdings. Above, there is a strong correlation between metal ETFs and EPU's (in blue) performance. SPDR Gold Trust (GLD) in red, iPath Dow Jones UBS Copper Total Return (JJC) in green, and iShares Silver Trust (SLV) in yellow.

Perhaps unsurprisingly, 14 of EPU's 28 holdings are in the Materials sector with a 54.6% allocation, providing broad exposure to mining and extraction. Apart from Materials, the fund also has a relatively high allocation in Financials with 23.41%. The expense ratio is 0.59%, and it has about $504 million under management.

Description: Macintosh HD:Users:jonathan 1:Documents:ETF stuff:ETF digest articles:2012-03-14 Peru:EPUvsECHvsGXG.tiff

You can see similar performance among Peru (EPU in blue) and its neighbors Chile (iShares MSCI Chile Index Fund [ECH] in red) and Colombia (Global X FTSE Colombia 20 ETF [GXG] in green). At the moment, Colombia is performing the best of the three.

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