ETFs To Watch On NAFTA Optimism

The year 2018 has seen increased optimism with regard to the trilateral NAFTA deal between the United States, Mexico and Canada. Although President Trump’s statement on there being no timeline for NAFTA talks bothered the markets, recent statements by the administration have somewhat cheered investors (read: 3 ETFs to Better Prepare for Aggressive Rate Hikes).

Election Uncertainty Drives Talks

Since mid-2017, the parties to the NAFTA deal have held seven rounds of talks. With elections scheduled in Mexico later this year and a reshuffle in the United States congress, trade officials from all countries will likely want to come to a consensus with regard to NAFTA soon (read: Should You Buy EM ETFs Despite Trade War & Other Concerns?).

An uncertain political environment will not be favorable for NAFTA negotiators. U.S. Vice President Mike Pence indicated that NAFTA talks are close to being finalized, in a bilateral meeting at the Summit of the Americas in Lima, Peru.

"As the president said very recently, we think we are close, we are encouraged at the progress of our negotiations and we are hopeful that we can conclude a successful renegotiation of NAFTA that will result in greater prosperity and a more fair and reciprocal trade between Canada the United States and Mexico," per a statement by Pence. "There is a real possibility that we could arrive at an agreement within the next several weeks," he added.

“There is a desire and a recognition by all three Nafta partners that the time-lines imposed upon us by both the upcoming, the imminent Mexican elections and the upcoming American midterms, means that we have a certain amount of pressure to try and move forward successfully in the coming weeks,” said Canadian President Justin Trudeau.

Certain skeptics still see some gaps in the trade talks."They're not close to a deal at all," per a statement by Canadian union leader Jerry Dias. However, the United States has dramatically changed its stance on trade, with the Trump administration softening on its key demand with regard to automobiles. The country also softened its stance on cars containing American parts to avoid tariffs and has expressed interest in rejoining the Trans-Pacific Partnership (TPP). As a result, multiple analysts are optimistic about three parties reaching a consensus on NAFTA soon.

Let us now discuss the ETFs likely to be impacted by NAFTA talks.

iShares Core S&P 500 ETF IVV

This fund is a low-cost ETF that seeks to provide exposure to the large established U.S. companies and tracks the S&P 500 index.

It has AUM of $141.1 billion and charges a fee of 4 basis points a year. From a sector look, the fund has high exposure to Information Technology, Financials and Health Care with 25.0%, 14.8% and 13.7% allocation, respectively. The fund’s top holdings are Apple Inc (NASDAQ:AAPL) , Microsoft (NASDAQ:MSFT) Corporation (NYSE:F) and Amazon.com Inc (NASDAQ:AMZN) with 3.9%, 3.2% and 2.6% allocation, respectively. The fund has returned 16.3% in a year. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

iShares MSCI Canada ETF (AX:EWC)

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 $2.7 billion and charges 49 basis points in fees per year. Financials, Energy and Basic Materials are the top sectors of the fund, with 41.7%, 21.1% and 10.6% allocation, respectively. From an individual holdings perspective, the fund has high exposure to Royal Bank of Canada, Toronto Dominion Bank and Bank of Nova Scotia, with 8.3%, 7.6% and 5.4% allocation, respectively. It has returned 6.9% in a year. EWC has a Zacks ETF Rank #3 with a Medium risk outlook.

iShares MSCI Mexico Capped ETF EWW

This is one of the most popular funds offering exposure to Mexico. It is an ideal choice for those who are upbeat about the overall performance of Mexican firms.

The fund manages AUM of $1.3 billion and charges 49 basis points in fees per year. Consumer Staples, Telecommunications and Financials are the top sectors of the fund, with 25.9%, 17.0% and 16.0% allocation, respectively. From an individual holdings perspective, the fund has high exposure to America Movil, Fomento Economico Mexicano and GPO Finance Banorte, with 16.0%, 8.8% and 7.5% allocation, respectively. It has returned 7.5% in a year. EWW has a Zacks ETF Rank #4 (Sell) with a Medium risk outlook.

First Trust NASDAQ Global Auto Index Fund CARZ

Bulk of U.S. trade deficit with Mexico is in the auto sector. This fund focuses on providing exposure to the global automotive sector, with 20.7% allocated to the United States. It has AUM of $20.9 million and charges a fee of 70 basis points a year. It has an allocation of 8.0% to General Motors (NYSE:GM) and 7.5% to Ford (NYSE:F) . The fund has returned 16.1% in a year.

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