Mexico ETF Worth Keeping on Radar

NEW YORK (TheStreet) -- Europe's sovereign debt-related bind and this country's political uncertainty are among the factors that continue to demand attention and make for a precarious global market environment.

It may be tempting to dive headfirst into risk during market rips like the one we saw at the start of the trading week. However, given the looming challenges that lay ahead, long-term ETF investors need to remain prudent.

For those looking to construct a sensible international portfolio in the New Year, a nation like Mexico may be worth keeping the radar. The iShares MSCI Mexico Investable Market Index Fund ( EWW) boasts a number of qualities that make it a strong choice for turbulent market periods.

In a time when growth doubts have been cast over popular emerging markets like China and India, the developing countries located south of the U.S. have enjoyed some welcomed time out of the spotlight. The threat of a slowdown in this region is still very much on the table for this region. Researcher note, though, that central banks of nations like Mexico, Chile, and Peru have a number of policy tools at their disposal which can be used to combat headwinds.

In addition to flexibility on the part of monetary authorities, a nation like Mexico lists ample exposure to defensive sectors. While this quality may make the nation a boring choice compared to other emerging names during periods of market euphoria, in trying times this dullness can be refreshing. This trait shines through in examining the breakdown of EWW.

EWW is designed to provide investors with exposure to the most influential companies in Mexico's marketplace. While the names that make up the fund's underlying index hail from across the market spectrum, safe haven industries like telecommunications and consumer staples command the largest percentage of the its sector breakdown. America Movil ( AMX), Walmart de Mexico, and beverage giant Formento Economico Mexicano ( FMX) together comprise slightly more than 50% of the fund's total portfolio.

Not surprising given this lineup, the fund has fared relatively well in recent months. Although it has seen a bit of a slowdown in our short-term rankings, EWW continues to climb in our long-term standings. Nevertheless, this is not a fund investors should set and forget.

On the contrary, the instrument's heavy dedication to its top three holdings leaves it vulnerable to upheaval. Investors looking to set aside a portion of their portfolio for EWW must be careful to avoid becoming overexposed.

A Mexican equity-tracking ETF like EWW is not the only way to target the nation's economy. It will likely witness some volatile action in the months ahead, but aggressive investors may also want to keep their eye on the peso. Recently, this currency player has seen some impressive strength. The Wall Street Journal noted on Tuesday that it climbed to its highest level against the greenback in three weeks.

Like other emerging market currencies, continued strength from the peso will likely depend heavily on global growth prospects in the developing world. At the same time, analysts note that resurgence in U.S. economic strength could push the currency higher as well.

The CurrencyShares Mexican Peso Trust ( FXM) is designed to allow investors to track the peso's action. For now, the best way to follow FXM is from the sidelines; with an average trading volume barely breaking 10,000 it is susceptible to liquidity-related issues.

For many, turning over to a new calendar year may feel like a refreshing reset. From an investment perspective, though, the opening weeks of 2012 should be viewed no differently than the closing days of 2011. Rather than trying to game every market swing, investors should be focused on building a portfolio that can withstand future choppiness. In small doses EWW should help to achieve this task.

Written by Don Dion in Williamstown, Mass.

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At the time of publication, Dion Money Management owned the iShares MSCI Mexico Investable Market Index Fund.

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