Country ETFs To Be Impacted By Trump's Tariff Plans

After a correction in early February, the markets recovered some of its losses to end the month on a slightly better note. However, March has not been welcoming for stock bulls across the globe, as President Donald Trump’s plans of imposing tariffs didn’t bode well for the markets.

Certain country-specific funds were in the spotlight, owing to their trade relations with the United States. Trump’s plans of implementing 25% tariff on steel imports and 10% tariff on aluminum imports weighed on these ETFs and made investors reallocate their portfolios.

“When a country is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win,” Trump tweeted. This has led to turmoil among investors globally, as they reevaluate their investment decisions in the light of the latest development. If imposed, these tariffs can have far-reaching consequences and eventually lead to retaliatory measures by countries affected, weighing on global economic growth as a result.

Into the Headlines

“When America sneezes, the world catches a cold”. This quote could not have been more appropriate given the current circumstances. Given that the United States is world’s largest steel importer, it literally decides the world order when it comes to the fate of a lot of economies, accounting for roughly 20% of global steel imports. In 2016, the U.S. imported 30.1 million metric tons of steel, declining from 35.4 million metric tons in 2015 and the near-record high of 40.3 million metric tons in 2014, per a trade.gov report.

Per Department of Commerce data, Canada is the largest steel importer to the United States, accounting for 17% of overall U.S. steel imports in 2016. Moreover, Canada accounted for 43% of aluminum imports to the United States in 2016. Apart from Canada, Brazil, South Korea, Mexico and Japan round out the top five steel importers to the United States, accounting for 13%, 12%, 9% and 7%, respectively, of overall U.S. steel imports in 2016.

Representatives from these countries are discussing possible retaliatory measures and aid from the World Trade Organization (WTO). “We cannot ignore this risk and I urge all parties to consider and reflect on this situation very carefully. Once we start down this path it will be very difficult to reverse direction. An eye for an eye will leave us all blind and the world in a deep recession,” Director-General Roberto Azevedo of the World Trade Organization said.

Let us now discuss a few ETFs focused on providing exposure to the countries that'll be impacted.

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. (read: How to Trade Canada ETFs on Populist Budget?).

The fund manages AUM of $2.9 billion and charges 49 basis points in fees per year. Financials, Energy and Basic Materials are the top three sectors of the fund, with 42.8%, 19.7% and 10.6% allocation, respectively (as of Mar 2, 2018). From an individual holdings perspective, the fund has high exposure to Royal Bank of Canada, Toronto Dominion Bank and Bank of Nova Scotia, with 8.5%, 8.0% and 5.5% allocation, respectively (as of Mar 2, 2018). It has returned 4.8% in a year. Per etf.com data, this fund witnessed $38.9 million in outflows in the week ended Mar 2, 2018.

iShares MSCI Brazil Capped ETF EWZ

This fund is the most popular ETF providing exposure to Brazilian equities. It focuses on the most liquid companies in the large-cap segment.

It has AUM of $8.7 billion and charges a fee of 62 basis points a year. Financials, Materials and Energy are the top three sectors of this fund with 36.2%, 15.4% and 11.6% allocation, respectively (as of Mar 2, 2018). The top three holdings are Itau Unibanco Holding Pref SA, CIA Vale Do Rio Doce SH and Banco Bradesco Pref SA with 11.6%, 9.7% and 8.2% allocation, respectively (as of Mar 2, 2018). The fund has returned 21.3% in a year. Per etf.com data, this fund witnessed $97.5 million in outflows in the week ended Mar 2, 2018.

iShares MSCI South Korea Capped ETF EWY

This fund is the most popular in the space offering exposure to South Korean equities.

It has AUM of $4.1 billion and charges 62 basis points in fees per year. From a sector look, Information Technology, Financials and Consumer Discretionary take the top three spots, with a 35.4%, 14.1% and 11.8% allocation, respectively (as of Mar 2, 2018). Samsung Electronics (KS:005930) Ltd, Sk Hynix Inc and Celltrion Inc are the top three stocks with 21.7%, 5.2%, and 3.5% allocation, respectively (as of Mar 2, 2018). The fund has returned 28.3% in a year.

iShares MSCI Mexico Capped ETF EWW

This is one of the most popular funds offering exposure to Mexico. It is a perfect bet for those who are bullish on the overall performance of Mexican firms.

The fund manages AUM of $901.4 million and charges 49 basis points in fees per year. Consumer Staples, Telecommunications and Financials are the top three sectors of the fund, with 25.9%, 17.2% and 15.9% allocation, respectively (as of Mar 2, 2018). From an individual holdings perspective, the fund has high exposure to America Movil, Fomento Economico Mexicano and GPO Finance Banorte, with 16.2%, 8.9% and 7.3% allocation, respectively (as of Mar 2, 2018). It has returned 7.0% in a year. Per etf.com data, this fund witnessed $45.4 million in outflows in the week ended Mar 2, 2018.

iShares MSCI Japan ETF EWJ

This fund is suited for investors looking for a broad-based exposure to Japan’s economy.

The fund has AUM of $21.8 billion and charges a fee of 49 basis points a year. From a sector look, Industrials, Consumer Discretionary and Information Technology are the top three allocations of the fund, with 21.2%, 20.3% and 13.0% exposure, respectively (as of Mar 2, 2018). Toyota Motor Corp, Mitsubishi UFJ Financial Group and Softbank Group Corp are the top three holdings of the fund, with 4.7%, 2.3% and 1.8% exposure, respectively (as of Mar 2, 2018). It has returned 18.8% in a year. Per etf.com data, this fund witnessed $117.4 million in outflows in the week ended Mar 2, 2018.

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