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ETFs Impacted by NAFTA Talks

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The Canadian dollar and Mexican peso advanced as the fifth round of NAFTA negotiations closed in Mexico. However, there is still a lot to be agreed upon between the three countries as only two more negotiation meetings are scheduled to take place (read: Volatility ETFs Jump on Rising Fear).


Slight Progress


According to Juan Pablo Castanon, head of Mexico’s business chamber, the negotiators are close to coming to an agreement on provisions of the telecom, energy and digital commerce sectors.


However, there was no real progress on major issues, such as autos, dairy and dispute resolution. "While we have made progress on some of our efforts to modernize NAFTA, I remain concerned about the lack of headway," U.S. Trade Representative Robert Lighthizer said.


However, Canadian representatives have accused the United States of putting forward extreme proposals that will be harmful to all parties concerned. "Some of the proposals that we have heard would not only be harmful for Canada but would be harmful for the U.S. as well," Canadian Foreign Minister Chrystia Freeland said.


Bulk of U.S. trade deficit with Mexico is in the auto sector. President Donald Trump has blamed NAFTA for loss of thousands of American jobs. However, various studies show that loss of jobs in the auto sector in particular has been caused by automation and technology.


The slow progress in NAFTA talks may give Trump the leeway to potentially terminate the critical trade agreement between the countries. There has been no progress on the U.S. proposal of terminating the deal minimizing the loss and impact to all parties concerned.


It is still uncertain if talks will be extended after the last scheduled meeting, owing to general elections in Mexico and national the United States in 2018.


Let us now discuss the ETFs likely to be impacted by progress in Nafta talks.


iShares MSCI Canada ETF (EWC - Free Report)


This is one of the most popular funds offering exposure to Canada. It is a perfect bet for those who are bullish on the overall performance of Canadian large-cap firms.


The fund manages AUM of $3.1 billion and charges 48 basis points in fees per year. Financials, Energy and Basic Materials are the top three sectors of the fund, with 43.0%, 20.9% and 10.0% allocation, respectively (as of Nov 20, 2017). From an individual holdings perspective, the fund has high exposure to Royal Bank of Canada, Toronto Dominion Bank and Bank of Nova Scotia, with 8.4%, 7.7% and 5.7% allocation, respectively (as of Nov 20, 2017). It has returned 11.6% year to date and 14.6% in a year (as of Nov 21, 2017). EWC currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.


iShares MSCI Mexico Capped ETF (EWW - Free Report)


This is one of the most popular funds offering exposure to Mexico. It is a perfect bet for those who are bullish on the overall performance of Mexican firms.


The fund manages AUM of $1.1 billion and charges 48 basis points in fees per year. Consumer Staples, Telecommunications and Financials are the top three sectors of the fund, with 26.7%, 16.4% and 16.0% allocation, respectively (as of Nov 20, 2017). From an individual holdings perspective, the fund has high exposure to America Movil, Fomento Economico Mexicano and GPO Finance Banorte, with 15.4%, 8.9% and 8.0% allocation, respectively (as of Nov 20, 2017). It has returned 16.1% year to date and 18.8% in a year (as of Nov 21, 2017). EWW currently has a Zacks ETF Rank #3 with a Medium risk outlook.


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