Mexico Fund (MXF) Stock

Mexican equities have sold off post-election. While somewhat warranted, the extent of the selloff seems excessive. Despite its flaws, the steeply discounted Mexico Fund now offers an attractive risk/reward.

The Mexico Fund, Inc. aims for long-term capital appreciation through equities listed on the Mexico Stock Exchange. The fund has experienced a large discount to NAV, but this may present an opportunity for investors. Risks in the short term are emerging though due to currency movements and upcoming elections.

The Mexico Fund is a Mexican-focused CEF with a long history (43 years) and a strong management team led by a Mexican-based lawyer. MXF primarily invests in stocks listed on the Mexican Stock Exchange, but may shift towards fixed-income securities during defensive periods. MXF has a higher expense ratio compared to its ETF counterpart, but offers a compelling yield and stable distribution growth. The discount to its NAV is currently larger than average.

Mexico's nearshoring-driven stock price momentum has finally begun to fade. The crunch from higher US rates has also started to bite, and the closed-end Mexico Fund has not been spared. The pricey MXF is still on offer at a wide discount to its underlying net asset value, but I won't be buying this dip just yet.

When investors think of Bill Gates stocks, they inevitably come up with Microsoft (NASDAQ: MSFT ), the software company he co-founded with Paul Allen in 1975 in Albuquerque. However, as Gates has spent less time around Microsoft's business, the billionaire has significantly diversified his investment portfolio.

Mexican equities have further extended their outperformance this year. But not all of the upside has filtered through to Mexico Fund investors, as the wider NAV discount eats into more gains. With more near-term headwinds on the horizon as well, expect a tougher second-half environment for Mexican equities.