The iShares All Peru Capped Index Fund ( EPU - Get Report), the first of its kind, hit the market this week. Like most of Latin America, Peru is a commodity-based economy that exports copper, gold, zinc and agricultural products. Peru's gross domestic product grew more than 9% last year, but the country's central bank recently cuts its 2009 estimate to 3.3%, with a rebound to as much as 5.5% in 2010.

The iShares All Peru Capped Index Fund is dominated by materials companies, comprising 65% of holdings, followed by financials, at 15%. The remaining sectors are much smaller.

The fund has only 25 stocks, with the top three accounting for 44% of assets. Mining company Compania de Minas Buenaventura ( BVN - Get Report) is the largest holding, at 19% of assets, followed by Southern Copper ( PCU), also a miner, at 15%, and Creditcorp ( BAP - Get Report), a bank, at 11%.

When copper tanked last summer, Compania de Minas Buenaventura and Southern Copper fell more than the iPath DJ AIG Copper Sub Index ETN ( JJC), but both also rebounded faster. Peru is a proxy, of sorts, for commodities, and I would brace for the likelihood that the iShares All Peru Capped Index Fund will decline more than the commodities themselves during downturns.

Consider that, from June until October 2008, the Lima General Index fell 63%. It has since doubled. That type of movement underscores the volatility.

The iShares All Peru Capped Index Fund can play several roles in a diversified portfolio. The enormous weighting in materials stocks -- more so than the iShares MSCI Brazil ( EWZ - Get Report), which has 27% (53% if you include energy) -- takes care of industry allocation. (Materials comprise 3.2% of the S&P 500 Index.) If an investor puts 10% of his money in the Peru fund, volatility will be much greater than the broad market. On the way up, that's a good thing; on the way down, not so much.

The other role it plays is in the global-modernization theme, helping to supply materials needed for the buildup of the world's infrastructure in emerging countries, which is why China is one of Peru's larger export destinations. The money for this theme is being spent, but the sentiment and market action ebbs and flows.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback; click here to send him an email.