The addition of small-caps and real estate investments trusts, or REITs, to Mexican equity portfolios can help improve diversification for investors, according to data from global index provider FTSE Russell.
FTSE Russell examined this diversification benefit from a correlation as well as a returns perspective. For a correlation perspective, FTSE Russell calculated the returns of three hypothetical indexes (large- and mid-cap Mexican stocks without REITs, small-cap Mexican stocks without REITs, and all-cap Mexican stocks with REITs) to explore these diversification effects. A hypothetical portfolio of all-cap Mexican equities with exposure to REITs had the lowest correlation levels relative to the other indexes.
Source: FTSE Russell. Data from 3/31/2013 to 8/31/2019. All index data is hypothetical and for illustrative purposes only. Please see the end for important legal disclosures.
And from a performance perspective, FTSE Russell analyzed relative annual historical performance for these three hypothetical indexes, finding that leadership has varied with each index leading annually in two of the last six years, again showing the benefits of diversification.
Source: FTSE Russell. Data from 3/31/2013 to 8/31/2019. Past performance is no guarantee of future results. Returns shown represent hypothetical, historical performance. Please see the end for important legal disclosures.
Edgar Guerra, director, North America ETP strategy & business development:
“We developed the FTSE BIVA Index with the end investor in mind. The design of the index ensures that it is well diversified across all major cap tiers and sectors including, importantly, exposure to real estate investment trusts, or REITs. Minimum liquidity thresholds for index constituents are designed to make the index sufficiently liquid and investable.”
Juan Hernandez, country manager, Vanguard Mexico:
“The FTSE BIVA Index, which underlies the new Vanguard FTSE BIVA Mexico ETF, helps illustrate the potential benefits to investors in pursuing a Mexican equity portfolio that is broadly diversified across market caps and sector, including REITs.”
Maria Ariza, CEO, BIVA MX:
“The challenge for investors seeking broad diversification across Mexican equities has historically been to have enough liquidity. By establishing minimum liquidity thresholds, the new FTSE BIVA Index helps solve the diversification challenge as well as the liquidity challenge.”
FTSE Russell introduced the FTSE BIVA Index in February 2018 as a way for investors to broadly measure the performance of a diversified portfolio of Mexican equities. The Index contains minimum liquidity thresholds for its constituents, designed to make the index both representative and investable.
For more information about the FTSE BIVA Index, go to the FTSE Russell website.
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