Little-known Peru ETF on top of the world, thanks to gold

The iShares MSCI All Peru Capped ETF (EPU) is up 30% on the year, making it the best-performing single country ETF of all 196 such funds in existence
MAR 29, 2016
By  Bloomberg
No one is happier to see this year's rebound in precious metals than an obscure Peru exchange-traded fund. The iShares MSCI All Peru Capped ETF (EPU) is up 30% on the year, making it the best-performing single country ETF of all 196 such funds in existence. This is nothing short of a miraculous turnaround for an ETF that had lost 53% in the three years prior to 2016. EPU's breakout year is largely due to its high allocation to — and dependence on — mining companies. While Peru ranks No. 52 in terms of GDP, or just ahead of Romania, it punches way above its weight when it comes to the mining of precious metals, ranking sixth in gold and second in silver. As such, EPU has a freakish 50% of its portfolio allocated to the materials sector. For comparison, no other single country ETF has more than 30% allocated to the materials sector. The heavy weighting to miners has been a bad thing in the past, but when gold and silver are up 16% and 11%, respectively, so far this year, it is a very good thing. It doesn't hurt that emerging markets in general have been coming back from a multiyear slump; beating the U.S. stock market for the first time in a long time in the first quarter of this year. Peru is barely represented, however, in the most popular emerging-market ETFs, because the country remains tiny in market value, barely registering in the popular iShares MSCI Emerging Markets ETF (EEM), which weights stocks by market cap, with a 0.40% weighting. Even the MarketVectors Gold Miners ETF has only 1.5% exposure to Peruvian companies. Peru is one of a number of "lost countries" that are small fish in big ponds. Others include Greece in the emerging-market bucket and Ireland and Israel in developed markets. Such countries slip through the cracks and as such are not really inside most investors' portfolios. This probably explains why EPU has more than $166 million in assets — which includes $28 million in new cash this year–despite being such an obscure single-country ETF. Those investors know they can't get Peru anywhere else. EPU comes with an annual fee of 0.62%.

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