The First New Trump ETF? Not Quite

I won’t pretend to know the motivation of an ETF issuer when it comes to investment theses behind new products, but the timing of last week’s new global-ex Mexico ETF launch is tremendous, or maybe sad. Or maybe it’s just coincidental timing.

My perception of the WisdomTree Global ex-Mexico Equity Fund (XMX) that was launched last Friday is splintered, that is on the surface.

You could perceive this to be a play on Donald’s Trump presidential victory and his antagonistic economic and immigration stance against Mexico. We all know that since the prospect of Trump’s presidential reality landed, the peso has taken more hits than Julio Cesar Chavez.

For an ETF perspective, the iShares MSCI Mexico Capped ETF (EWW), a market-cap-weighted index of Mexico equities, is down more than 8% since Trump was nominated as the Republican candidate for president back on July 19. Since the outcome of the election was clear, in early November, the fund has declined more than 11%.

But what’s interesting is that the Vanguard Total World Stock Index Fund (VT)—a global equity ETF with less than 0.5% allocated to Mexico—is up about 8% during that same period, as is the iShares MSCI ACWI ETF (ACWI), which has only 0.385% tied to Mexico equities.

These allocations are extremely small, so don’t blame Mexico for any perceived drag on ACWI or VT.

Performance of EWW, ACWI & VT Since July 19, 2016

Why This Is Not A Designed Trump Play

Launching under the context of Trump’s first month in the office—yes, it has not been a month yet—the “perception is stronger than reality” notion hovers over the WisdomTree Global ex-Mexico Equity Fund (XMX) like the morning fog over Pebble Beach.

But the fact is that for an ETF issuer to exploit a recent geopolitical moment—the reality of Trump as president was fantasy up until it happened last November—is fanciful because of the process. You don’t snap your fingers and launch a cool and timely investment security like that. Ask the Winklevoss Twins, who have been waiting on the SEC for years. (Decision On Bitcoin ETF Coming March 11)

So the idea that this was designed as a ploy to attract Trump voters or the like with an anti-Mexico investment theme rings as hollow as an empty tunnel.

What this comes down to is timing, a coincidental thing in the ETF world.

Remember November 2015?

People will invest in all kinds of things for different reasons, but if you are buying XMX because you want to feel good about your investment dollar aligning with Trump policies, you are sadly mistaken. Sure, investors may want to limit their exposure to Mexico, but that is not what I see here.

WisdomTree has already cross-listed some 32 ETFs on the Mexico stock exchange, and if it does the same with XMX, there is likely to be interest from Mexico investors in a global fund that excludes domestic exposure. The real news is that for all intents and purposes, this looks to be designed for the Mexico market, not Trump voters.

On top of that—here is where air comes out of the “New Trump ETF Lands” fake news—Wisdom Tree filed its first SEC proposal for XMX in November 2015, one year before Trump was elected, when he was presumed to be a laughable, but entertaining, candidate at best.

While XMX is the first global ex-Mexico ETF to be listed in the U.S., the idea that this was created with a Trump presidency in mind is fiction. There is such a thing as getting lucky with the timing of a product launch.

Assets may begin to flow into XMX because this false pretense begins to propagate through Twitter or financial websites looking for a fresh ETF angle. But if you are really looking to apply a “Make America Great” sleeve to your portfolio, there is the ProShares UltraShort MSCI Mexico Capped IMI (SMK), which shorts the Mexico stock market.

SMK is down 21% since Trump was sworn in on Jan. 19, while EWW has risen more than 11%. Good luck with that investment thesis.

Performance of EWW, SMK, ACWI & VTI Since Jan. 19, 2017

Charts courtesy of StockCharts.com.

At the time of writing, the author held none of the securities mentioned. Drew Voros can be reached at [email protected].