You can go to Las Vegas and bet on the U.S. election, or make a side bet with your friends. Or you can buy an ETF.
Say what? Professional investors have noticed that the iShares MSCI Mexico Capped ETF (ticker: EWW), an ETF that focuses its investments in Mexican stocks, is increasingly being driven up or down based on the polls that display the possible election odds of wall-building, NAFTA-renegotiating candidate Donald Trump. As the Trump campaign gained steam in September, short-interest in the ETF rose 59%. The fund has since recovered as Democratic nominee Hillary Clinton’s popularity rebounded after the recent Presidential debate.
Mexico’s economy was hard-hit by the decline in oil prices, and sluggish economic growth in the U.S. has had an impact on exports. But the prospects of a Trump presidency, and a possible slowdown in trade with (and outsourcing from) the U.S. market, make investors skittish about investing in the Mexican economy’s near future. Four-fifths of Mexico’s exports go to the U.S., and factories along the Mexican border with the U.S. have been replacing China as the outsource of choice for American manufacturers looking for less expensive labor. The head of Mexico’s central bank, Agustin Carstens, said that a Trump presidency would hit his country like a hurricane.
Rather than engaging in short-selling or speculative investing—a loser’s game, long-term—you might simply watch the ETF’s ups or downs heading into November. Its fluctuations might turn out to be more accurate than the polls. But it might also be helpful to remember that right up to the British Brexit vote, people were relying on the rising value of the British currency to tell them them that the smart money “knew” that the English people would vote to stay in the European Union. And then they didn’t.
About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years. Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.
Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association.