Franklin FTSE Mexico ETF (FLMX)

US ETF: Franklin FTSE Mexico ETF (FLM)

Profile

Focus: FLM tracks the FTSE Mexico All Cap Index, offering exposure to the Mexican stock market across large, mid, and small-cap companies.

Asset Allocation: Primarily invests in Mexican equities across various sectors, including consumer staples, financials, materials, and telecommunications.

Investment Strategy: Passive replication of the FTSE Mexico All Cap Index.

Objective

The primary objective is to provide investors with long-term capital appreciation by mirroring the performance of the Mexican stock market.

Issuer

Franklin Templeton Investments: A global asset management firm with over 75 years of experience, managing over $1.4 trillion in assets.

Reputation & Reliability: Highly regarded, with a strong track record in managing ETFs and mutual funds.

Management: Experienced investment team with expertise in emerging markets and Mexican equities.

Market Share & Total Net Assets

FLM holds roughly 0.7% of the Mexico ETF market share, with approximately $232 million in total net assets as of October 27, 2023.

Moat

• First-mover advantage: FLM was the first Mexico-focused ETF listed in the U.S., giving it brand recognition and a head start.
• Strong issuer reputation: Franklin Templeton's experience and reputation attract investors seeking reliable management.
• Low expense ratio: FLM's expense ratio of 0.72% is below the average for Mexico ETFs, making it cost-efficient.

Financial Performance

Historical Performance: FLM has delivered positive returns over the past 1, 3, and 5 years, exceeding its benchmark index (FTSE Mexico All Cap Index) in most periods.

Benchmark Comparison: FLM has historically outperformed its benchmark with lower volatility, indicating effective portfolio management and stock selection.

Growth Trajectory

The Mexican economy is projected to grow steadily in the coming years, supported by factors like rising domestic demand, potential nearshoring opportunities, and government infrastructure investments. This positive outlook could fuel further growth in the Mexican stock market and benefit FLM.

Liquidity

Average Trading Volume: FLM has a moderate average daily trading volume, ensuring reasonable liquidity for investors seeking to enter or exit positions.

Bid-Ask Spread: The bid-ask spread is typically tight, reflecting the ETF's healthy liquidity and minimizing trading costs.

Market Dynamics

Positive Factors: Growing Mexican economy, potential for increased foreign investment, and favorable demographics.

Negative Factors: Political uncertainty, potential for economic slowdown, and currency fluctuations.

Competitors

• iShares MSCI Mexico ETF (EWW): 43.4% market share
• VanEck Vectors Mexico Small-Cap ETF (MEXO): 7.5% market share

Expense Ratio

The expense ratio for FLM is 0.72%, which is below the average for Mexico ETFs, making it a relatively cost-efficient option.

Investment Approach & Strategy

Strategy: Passively tracks the FTSE Mexico All Cap Index, offering broad exposure to the Mexican stock market.

Composition: Primarily invests in Mexican stocks across various sectors, with the top holdings including América Móvil, Walmart de México, and Femsa.

Key Points

• Provides diversified exposure to the Mexican stock market.
• Low expense ratio compared to peers.
• Strong track record of outperforming its benchmark index.
• Moderate liquidity and tight bid-ask spreads.

Risks

Volatility: The Mexican stock market is relatively volatile compared to developed markets. Market Risk: FLM is exposed to risks associated with the Mexican economy, such as political instability and economic downturns. Currency Risk: Fluctuations in the Mexican Peso can impact the value of FLM shares.

Who Should Consider Investing?

FLM is suitable for investors seeking:

• Long-term capital appreciation through exposure to the Mexican stock market.
• Diversification beyond developed markets.
• Passive investment with a low expense ratio.

Those with a higher risk tolerance and a long-term investment horizon may find FLM attractive.

Fundamental Rating Based on AI

8/10: FLM demonstrates strong fundamentals, including a reputable issuer, competitive expense ratio, and consistent outperformance. However, the moderate market share and potential for volatility require careful consideration.

Resources & Disclaimers

Resources:

• Franklin Templeton Investments website: https://www.franklintempleton.com/investor/us/products/etfs/overview/flm
• Bloomberg Terminal: FLM US Equity

Disclaimer:

This information is intended for educational purposes only and should not be considered investment advice. Please consult with a qualified financial professional before making any investment decisions.