Part of the reason for the strong showing of the Mexican ETF has been its sector composition. The fund has 38% of its assets in consumer shares and nothing in energy. That is very different from typical emerging markets funds, which have big stakes in commodities and relatively little in consumer staples. In the past year, consumer stocks rallied, while energy shares lagged as investors worried that a slowing economy in China could hurt demand for commodities. Mexican markets have few big energy stocks because PEMEX -- the country's giant oil producer -- is owned by the government and the shares do not trade on public markets.
The big consumer stake could help the iShares Mexican fund in coming years. As millions of formerly impoverished consumers enter the middle class, they are beginning to shop more in chain stores and buy more staples. The trend toward increasing purchases of household appliances seems likely to continue because banks are beginning to extend more credit.
A holding in the ETF is Fomento Economico Mexicano (FMX), which owns the largest chain of convenience stores in Mexico and also controls the biggest Coca-Cola (KO) bottler in the world. Sophie Bosh of JPMorgan owns the stock. "They have been increasing the amount of floor space in the convenience stores and improving the margins," she says.
Another holding that stands to benefit from the growing consumer economy is Wal-Mart de Mexico (WMMVY). The chain now has $32 billion in sales and is winning over budget-minded Mexican shoppers.A company that stands to benefit from increased manufacturing in Mexico is Alfa S.A.B (ALFAA.MX), a conglomerate that makes petrochemicals and aluminum auto parts. "As more car companies come to Mexico, they are buying more parts," says Sophie Bosch. Follow @StanLuxenberg This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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