The race to bring the first Peru ETF to market was won by iShares today with the introduction of iShares MSCI All Peru Capped Index Fund (EPU). Most observers were expecting Global X to win this race, anticipating a mid-June launch according to a Bloomberg interview with Global X Management. A link to that interview was available on the Global X website last week, but it is no longer there, an apparent acknowledgment iShares turned out to be the first-mover.
The new iShares ETF overview states that the fund will track the MSCI All Peru Capped Index and have total fund operating expenses of 0.63%. Investing in Peru is really an investment in metals, mining, and materials stocks. The fund fact sheet indicates it has 65% exposure to the materials sector and more than one-third of its assets in just two stocks; Compania Minas Buenaventura (BVN) and Southern Copper (PCU). So, on a day like today when the materials sector is getting blasted, you’d expect EPU to perform in similar fashion.
EPU is not the only ETF with such concentrated exposure. Many single country and emerging market ETFs have large sector exposure that is not readily identified in the fund’s name. The takeaway is to understand exactly what you are buying. Funds that lack industry diversification can be painful on days like today when specific sectors get smashed. Of course they can also work in your favor when those sectors are in play.