Beyond Brazil, Part 1: Mexico ETF

NEW YORK ( TheStreet) -- Mexico and Chile are the two Latin American economies that have moved beyond the emerging market stage of development (both are members of the OECD), and they are two of the larger single-country ETFs from the Latin America region.

Investors looking for ways to play the region while avoiding Brazil, which dominates broad regional funds, should first look to these two country ETFs.

Mexico

Mexico is home to over 111 million people and boasts the twelfth largest economy in the world. Mexico's markets have faced economic crises, most famously the peso's violent devaluation in 1994 and most recently the global financial crisis, but the country has rebounded before and will again. Currently, forecasters predict economic growth in the latter half of 2010.

Similar to economies of developed nations, Mexico's economy is dominated by its services and industrial sectors. Top services include banking, education and telecommunications. Mexico's main industries are cement and construction, food and beverages, and fossil fuel production.

The United States is the recipient of the lion's share of the country's exports. Major goods shipped abroad include manufactured goods, silver, oil, and agriculture. Thanks to the implementation of NAFTA in 1994, trade with the United States and Canada has expanded threefold. Aside from its North American neighbors, Mexico also has trade agreements with a number of South American nations, Europe and countries in Asia.

Mexico is also home to one of the world's wealthiest individuals, Carlos Slim. Ranked just below Warren Buffett, the businessman's wealth in 2009 was valued at $35 billion.

Launched in 1996, the iShares MSCI Mexico Investable Market Index Fund ( EWW) is currently the only pure play ETF available for investors looking for access to the U.S.' southern neighbor.

Sector exposure is in line with the economy. Telecommunications account for 35% of assests, followed by 23% in consumer staples, 14% in materials, 13% in consumer discretionary and 8% in industrials.

Although the fund is designed to track the broad Mexican market through an index consisting of 45 holdings, its performance is largely dependent on the success of a small number of these constituents. Carlos Slim's telecommunications firm, America Movil ( AMX), accounts for nearly a quarter of the fund's total portfolio. Other top holdings include Wal-Mart de Mexico ( WMMVY) and cement giant Cemex ( CX). Together, these top holdings make up 40% of the fund's index.

EWW's Performance has remained negative through the first part of 2010, but its growth in the most recent one-year period ending Feb. 23 has been impressive. In that time, the fund has managed to gain more than 100%.

Given the top-heavy nature of EWW, I would advise investors looking to hold this fund to keep exposure small. Also, it is essential that investors continually monitor the performance of the instrument and the holdings dominating its index. If any of these top weighted companies see a volatile move, its effect on EWW's performance will be significant.

Stay tuned for a look at Chile later today.

-- Written by Don Dion in Williamstown, Mass.

At the time of publication, Dion owns iShares MSCI Mexico Investable Market Index Fund.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.

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