Investors are withdrawing from one of the most profitable trades of the year.
The iShares MSCI Mexico Capped ETF
an exchange-traded fund that tracks the Mexico equity market, has seen big gains in 2017, advancing nearly 17%. That is nearly four times the rise of the S&P 500
which is up 4.5% thus far this year.
Despite that, the fund—one of the most popular ways for investors to get exposure to the country—has seen outflows of $550 million since the start of the year, the fifth most of any equity-based ETF on the market.
The redemptions largely reflect investors cashing out of their investments, as the country’s rally thus far this year represents a remarkable turnaround from the protracted weakness it suffered in 2016, analysts said. The ETF was one of the worst-performing single-country funds last year, dropping 16% over the course of the year.
Much of that weakness came in the final months of the year, following Donald Trump’s U.S. presidential election victory. Investors fretted that the policies Trump advocated during the campaign—including building a wall along the U.S.-Mexico border and ripping up trade agreements—would prove to be major headwinds for the country’s economy. On the day after the election, the Mexico ETF suffered its biggest one-day drop since 2008, while the peso fell to an all-time low.
Since then, however, those fears have eased some. Last week, Homeland Security Secretary John Kelly played down expectations for a border wall, while the Trump administration indicated it might only seek modest changes to the North American Free Trade Agreement, a contrast from the rhetoric he used during the campaign, when he referred to the trade pact as a “disaster.”
“There was a certain fear from Trump coming into office, but that’s already starting to pass,” said Phil Davis, chief executive officer of PSW Investments, a San Diego-based trading and investment firm. He added that the country could also benefit from greater trade with both China and Europe.
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