Peruvian Pause With These ETFs


Peruvian stocks and the ETFs they call home entered 2013 with plenty of promise. Amid another decent year for precious metals prices and robust economic growth, the iShares MSCI All Peru Capped ETF (NYSE:EPU) jumped 24.2 percent in 2012.

Welcome to 2013, the year of the repudiated metals trade and it is the rejection of that trade that helps explain EPU's almost 28 percent year-to-date loss. As is frequently noted with EPU, the ETF does not skimp on materials stocks as that sector accounts for 44.6 percent of the fund's weight.

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Additionally, investors do not overlook the fact that Peru is a major gold producer, a top-five copper producer and the world's largest silver producer. The average year-to-date loss for the iShares Silver Trust (NYSE:SLV), the SPDR Gold Shares (NYSE:GLD) and the iPath DJ-UBS Copper TR Sub-Index ETN (NYSE:JJC) is 24.1 percent.

Over the past month, an interesting situation has emerged with EPU and it could be a sign of some ominous things to come. In the past four weeks, SLV is down 8.4 percent while the iShares MSCI Emerging Markets Index Fund (NYSE:EEM) is only modestly lower. However, over the same period, EPU has plunged almost 11 percent. At the very least, it is obvious EPU is now performing worse than SLV and the Peru ETF's dismal performance relative to EEM could be a sign that if emerging markets equities rebound, Peru will be a market that gets left behind.

Even the Global X FTSE Andean 40 ETF (NYSE:AND), the next best option for getting Peru with a 19 percent allocation to the country, has a monthly loss that is only a third of EPU's. Economic data released earlier this week indicate things could get worse for EPU before getting better.

Peru, previously highlighted as Latin America's fastest-growing economy, posted growth of five percent in May compared with 6.47 percent in May 2012 and below the 5.4 percent expansion analysts expected, Reuters reported. Peru's first-quarter GDP growth was its worst quarterly rate since 2009 and as been seen in other emerging markets, such as China, bankers and private economists now view Peru's six percent GDP growth target for 2013 as a tad too ambitious.

Searching for a silver lining, no pun intended, with EPU is not difficult, but the ETF's high points could be traps in the making. Investors have pulled almost $114 million from the ETF this year, but since the start of June the fund has seen net inflows equivalent to almost 16 percent of its current assets under management tally of nearly $279.5 million.

EPU is also inexpensive compared to EEM. The Peru ETF has a P/E ratio of 13.9 and a price-to-book ratio of 2.63 compared to 18.15 and 3.15 for EEM, according to iShares data. Then again, stocks from Moscow to Mumbai are cheap and that has not done much to lift the fortunes of developing world ETFs.

Over the near- to medium-term, investors that are interested in EPU will have to take their cues from the metals market, in particular SLV.

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