The Mexico Fund: Emerging Market Stability and Growth For Long-Term Investors

Derek Hansen  |


Since the summer trading period ended, volatility in the stock market has been on the rise. Global trade wars and hawkish interest rate policy from the Federal Reserve has weighed on sentiment. This has produced significant declines in the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite Index. For investors, this creates added incentive to look at emerging markets as a source of growth in the quarters ahead.

Opportunities in these types of environments can often be found when isolating well-positioned assets in economics which are shielded from the turmoil in the broader financial market. One name which has risen to prominence as a market leader is the Mexico Fund(MXF)), which is currently trading at attractive valuations relative to its historical averages. The Mexico Fund seeks long-term capital appreciation through investment in securities, primarily equity, listed in Mexico.

On a YTD basis, the Mexico Fund has outperformed its asset category while raising its quarterly distributions for shareholders.

Stock Market Chart

The Mexico Fund is a highly-diversified instrument with assets allocated across seven important industry sectors. Industrials make up the majority of the fund (at 19.41%), while Basic Materials (17.80%), Consumer Goods (16.10%), Telecommunications (15.61%), Financials (12.94%), Consumer Services (10.33%), and Utilities (2.65%) comprise the remainder. This impressive level of asset diversification helps investors protect against potential market declines in any individual industry.

Stock Market Chart

The fund’s individual stock holdings are well-positioned to drive growth in ways that are largely unmatched in most developed market assets. Telecommunications company America Movil SAB de CV ( (AMXVF)) represents its largest holding (at 12.76% of the fund). Wal-mart de Mexico SAB de CV ( (WMMVF)) is the fund’s second-largest holding (at 7.79%), and multinational beverage and retail company Fomento Economico Mexicano SAB de CV ( (FMXUF)) is the fund’s third largest holding (at 7.52%).

Banking and financial services holding company Grupo Financiero Banorte SAB de CV ( (GBOOF)) takes the fourth position in the fund (at 6.52%), and Grupo Mexico S.A. de C.V. ( (GMBXF)) takes the fifth position in the fund (at 6.10%). This diverse group of stocks acts in combination to help create a strong portfolio outlook for long-term investors.

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As a closed-end fund, MXF offers additional to value to investors through its discount to net asset value. At current price levels ($14.42), the Mexico Fund is trading at a 14.12% discount relative to its net asset value ($16.79).

Stock Market Chart

In this chart, we can see that the current market valuations have created one of the best discounts in the fund’s history. With the broader U.S. market still trading near historic highs, it has become increasingly difficult to find value in the equities space. But, with share price valuations this inexpensive, it looks as though MXF may be poised for strong rallies as we head into next year.

Stock Market Chart

In addition to the discounts seen in market prices, the Mexico Fund has managed to grow its distribution in a consistent and stable fashion. This has been the case since the inception of the fund. At current price levels, the Mexico Fund offers investors a total distribution rate of 6.93%. The Board of Directors recently announced a quarterly distribution increase from $0.15 per share to $0.25 per share. This represents an increase of 66.7% relative to the distributions paid in April and July 2018, and an increase of 92.3% from distributions paid during 2017.

Stock Market Chart

During the Fund´s fiscal year ended October 31, 2018, the Fund´s NAV outperformed its benchmark by 423 basis points, and has also outperformed its benchmark during the last three-, five- and ten-year periods ended on the same date.

For investors, this creates incredible potential for income as the fund’s distribution level is far higher than the 1.91% dividend yield which is typically associated with the S&P 500 averages. When taken in combination, the Mexico Fund offers well-diversified protection for investors in market conditions which have become increasingly unpredictable. The Mexico Fund provides elevated distribution levels and broad industry exposure for investors with strategies that provide enhanced growth potential.

For investors, the Mexico Fund’s attractive distribution rates are well above the market averages. Low market valuations and superior performance against its benchmark create excellent income opportunities for emerging markets investors with long-term time horizons.

This article originally appeared on Dividend Investments, which aims to identify the best income stock opportunities in the market.

DISCLOSURE: The author has no position in any stock mentioned.


The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
GBOOF Grupo Fin Banorte Ord 4.64 0.00 0.00 61,339
FMXUF Fomento Economic Mex Uts 8.32 0.00 0.00 0
WMMVF Wal-Mart de Mexico S.A.B. de C.V. 2.46 0.12 5.13 992,114
GMBXF Grupo Mexico Sa B 2.03 0.02 0.92 3,644
AMXVF America Movil SAB de CV 0.65 0.00 0.00 0
MXF Mexico Fund Inc. (The) 12.74 -0.02 -0.16 21,655 Trade

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