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3 Top Mexico ETFs

Mexico has gotten a lot of attention from U.S. investors lately, in large part because of the positions the Trump administration has taken with respect to our neighbor to the south. Fears of trade tensions helped send the Mexican peso down sharply against the dollar after the 2016 U.S. presidential election, and many Mexican stocks with exposure to the U.S. market have suffered as a result. Poor performance in crude oil hasn't helped the country's natural resources industry, either, but long-term investors believe that a Mexican rebound is not only possible but likely.

To invest in Mexico, relatively few standard exchange-traded funds are available, but closed-end funds offer a good way to get exposure. The following five funds that trade on exchanges offer slightly different approaches toward the stock market in Mexico.

Mexico ETF

Assets Under Management

Expense Ratio

5-Year Average Annual Return

iShares MSCI Mexico Capped (NYSEMKT: EWW)

$1.40 billion

0.48%

(0.9%)

Mexico Fund (NYSE: MXF)

$303 million

1.69%

1.4%

Mexico Equity and Income Fund (NYSE: MXE)

$87 million

1.89%

5.9%

Data source: Fund providers.

An index approach to the Mexican stock market

The easiest way to get coverage of the Mexican stock market is to track a primary market benchmark there. The iShares ETF does exactly that, with 60 different stocks that span Mexico's key industries. Consumer staples make up the biggest portion of the fund's assets, gaining about a 25% allocation. Financials, materials, and telecom stocks make up nearly half of the fund, with industrials, consumer discretionary, and real estate companies constituting the bulk of the remainder. The ETF is heavily weighted toward its biggest stocks, with the top five holdings adding up to more than two-fifths of the fund's total positions.

Image source: Getty Images.

Looking at the closed-end fund universe

Closed-end funds are much like ETFs from investors' standpoint, trading on stock exchanges during each day's market session. Mechanically, though, closed ends work differently from ETFs. ETFs can create or absorb shares at any time, but closed ends have only a fixed number of shares outstanding. That creates substantial discounts or premiums between the trading price of the shares and their net asset value.

The Mexico Fund has been around for a long time, and it has most of the same exposure as the main Mexican stock market benchmark. Consumer goods, industrials, basic materials, and financials split about 70% of fund assets, with consumer services and telecom stocks representing most of the rest of the remaining holdings. The fund currently trades at a 12% discount to net asset value, but its hefty expense ratio is typical of closed-end funds, especially internationally.

The Mexico Equity and Income Fund has an even wider discount of 13% to NAV, but it has produced the best return of any of the three funds tracked here. The fund's portfolio closely resembles that of its peers, although consumer stocks play a slightly less important role here than industrials, financials, and basic materials. Costs of the fund are even more expensive than at the Mexico Fund, but the closed end's goal to provide both income and share-price gains is appealing to many investors.

Which Mexican fund is best for you?

For low-cost exposure to the Mexican market, there's simply no substitute for the single-country iShares fund, which tracks a favored benchmark of the country's stocks. If you believe that Mexico will stop being quite so out of favor among investors, then picking a closed-end fund in the hope of profiting from a narrowing in the discount to net asset value could be lucrative. With more assets under management and slightly lower expenses, the Mexico Fund gets a slight nod over its smaller rival.

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Dan Caplinger owns shares of The Mexico Fund. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.