Mexican Equity and Income Fund: 2022 Semi-Annual Report

Eand Mexic ethatIJthere and InotcoMand Funds, Inotvs.

Semi-onennual Report

JAnuaMay 31, 2022

The Palace of Fine Arts Mexico vscity, Mexico. vsanVa. 2021

Eand Mexic ethatIJthere and InotcoMand Funds, Inotvs.

Semi-onennual Report

Jacorn vsohnotyounot you

  • 1 letter to shareholders

  • 15 Relevant economic information

  • 17 Allocation of Portfolio Assets

  • 18 Table of investments

  • 22 Statement of assets and liabilities

  • 23 Income statement

  • 24 Statements of changes in net assets

  • 25 financial highlights

  • 26 Notes to the financial statements

  • 52 Additional Information

  • 54 Dividends and distributions

  • 56 Results of the annual meeting of shareholders

  • 57 Privacy Policy

  • 59 Fund management

The Mexico Equity and Income Fund, Inc. Report by Pichardo Asset Management (“PAM”), The Investment Adviser.

Dear Shareholder of the Fund,


During a period of high financial volatility resulting from a change in monetary policy in the United States and other developed countries, due to continued price pressures and geopolitical turmoil, the Mexican stock index (“ Mexbol Index”) recorded an exceptional return of +24.07% in Mexican pesos (+20.94% in US dollars), comparing favorably to other emerging markets for the calendar year ended December 31, 2021.

In 2021, Mexico’s gross domestic product (“GDP”) increased by 5% compared to the previous year, recovering more than half of the contraction observed in 2020 due to the Covid-19 pandemic, due a recovery in private consumption, investment and an increase in exports. Please see Exhibit 1.

Equity market performance in 2021 is primarily a reflection of its 10-year price-earnings ratio at attractive relative valuations. Mexico’s economic recovery from the Covid-19 pandemic, coupled with sound public finances, fiscal discipline and a resilient exchange rate, were favored as strong drivers of Mexbol index performance over the course of the year. the calendar year ended December 31, 2021. Please see Exhibit 2.

The 21.1% dilutive non-transferable rights offering recorded a -25.09% decline in net asset value “NAV” return for the six months ended January 31, 2022. In turn, opportunistic capitalization resulted in a decrease in the NAV per share of -1.10% for the year ended January 31, 2022, according to Bloomberg.

Please see exhibits 3, 4 and 5.

The Fund’s strategy presents a more defensive stock selection at the end of its semi-annual period, which ended on 31 January 2022, compared to the Fund’s annual fiscal period, which ended on 31 July 2021. , highly liquid stocks, with fair valuations, represent approximately 38% of the Fund’s net assets compared to 35% as of July 31, 2021. Stocks discounted to their intrinsic value, as determined by PAM, in the ranking of averages and small caps, represent 51.7% of the Fund’s net assets. The Fund also includes 3.4% cash and ready-to-use instruments during the six-month period ending January 31, 2021.

Macro environment

Mexico’s GDP in 2021 grew 5% from the previous year, recovering more than half of what it lost in 2020 due to the pandemic. This resulted from higher employment levels, an increase in minimum wages, above expected levels of remittances, which fueled domestic sales and private consumption and allowed a gradual recovery in investment. private sector and exports (manufacturing, electronic components, agricultural products, among others). See exhibits 1, 6, 7 and 8. Please see the full macro report on the Fund’s

MXE investment strategy

We entered the Fund using a bottom-up approach focused on high-quality growth stocks, targeting companies with pricing power, free cash flow and quality management. (Source: WFP; Bloomberg). Please see exhibits 9 and 10.


The main contributors to Fund performance during the six months ended January 31, 2022 were Communication Services (+141 bps), Financials (+54 bps) and Consumer Staples (+8 bps). based); while the main detractors from the Fund’s performance during the six months ended January 31, 2022 were Materials (-)436 basis points, Industrials (-)79 and Consumer Discretionary (-)42 basis points.

The largest sector allocation continues to be materials, as companies in the sector have been consolidating M&A activity over the past 20 years, market share positioning in the North American Free Trade Area. Please see Exhibit 11. In particular, Alpeka with a weighting of more than 500 basis points in the petrochemical industry linked to raw materials with a zero allocation in the MSCI-Mexico index. Alpeka is a leader in the production of PET in the North American region (among other petrochemicals), a polymer of the polyester family used for the production of fibers, containers and polyester fibers. PET is widely used in consumer goods and consumer packaging today and is found in everything from plastic water bottles and food containers to clothing, furniture and automotive production. The company’s annual dividend policy is around 7.00%, and its cyclicality is expected to decrease following 12-month compound quarterly revenue growth of 11% for the period 2020 to 2021, as the coronavirus pandemic emerges. Covid-19. Please see Exhibit 12.

MXE performance

To elaborate on the Fund’s performance aligned with its investment strategy, please keep in mind that the Fund’s NAV return declined -4.88% for the six months ended January 31, 2022 and posted a NAV yield of 25.57% for the one-year period ending January. 31 2022, after adjustment with an allocation factor of 0.79% related to the rights offering which took place in October 2021. Please see Piece 3 for the overall performance of the Fund.

Final remarks

The equity market risk is mainly related to higher inflationary pressures and the possibility of monetary policy tightening by the Banco de Mexico, Central Bank, with a reference rate of 6.00% on February 10 2022, and projections of a 0.50% rate hike at its upcoming March 24, 2022, meeting. Please see Exhibit 13. In addition, the earnings stretch yield shows 7.15%, directing portfolio management decisions towards greater focus on stock selection, particularly those with pricing power, share positioning markets, consistent free cash flow generation and good management.

The main political risk, in our opinion, is the initiative to modify the electricity reform approved in April 2014, which will be discussed in Congress in the coming weeks.

On behalf of the PAM team, we thank you for your trust. We believe that the experience and dedication of our team are essential elements in continuing to provide a good quality portfolio management service.


Maria Eugenia Pichardo

David Estevez

John Elizalde

Senior Portfolio Manager

Analyst and Portfolio Manager

Analyst and Portfolio Manager


Mexican Equity and Income Fund, Inc. (“the Fund”) maintains an investment objective of long-term capital appreciation through investment in securities, primarily equities, listed on the stock exchange. mexican. The Fund provides a vehicle for investors who wish to invest in Mexican companies through a non-diversified managed portfolio as part of their overall investment program.

Fund holdings and sector allocations are subject to change at any time and should not be considered a recommendation to buy or sell any security. Please see the table of investments in this report for a full list of fund holdings.

The information and opinions provided herein represent the opinion of Pichardo Asset Management, not the Board of Directors of the Fund, and are not intended to be a prediction of future events, a guarantee of future results or investment advice. This report contains certain forward-looking statements about factors that may affect the performance of the Fund in the future.

Management believes these forward-looking statements to be reasonable, although they are inherently uncertain and difficult to predict.

Investors should carefully consider the Fund’s investment objectives, risks, charges, expenses and restrictions. The prospectus contains this and other important information about the investment company, which may be obtained by calling US Bancorp Fund Services, LLC, (414) 765-4255. Read it carefully before investing.

All investments involve risk. Main loss is possible. Investing in emerging market stocks involves additional risks such as currency fluctuations, currency devaluations, price volatility, social and economic instability, differing securities regulations and accounting standards, information available to limited public, changes in taxation, periods of illiquidity and other factors. These risks are greater in emerging markets. Stocks of small and mid capitalization companies are more volatile and less liquid than large capitalization companies.

Invest in foreign securities

Investing in Mexican securities involves special considerations and risks not typically associated with investing in U.S. securities, including (1) relatively higher price volatility, lower liquidity, and the small market capitalization of markets Mexican titles; (2) currency fluctuations and the cost of converting Mexican pesos to US dollars; (3) restrictions on foreign investment; (4) political, economic and social risks and uncertainties (5) higher inflation and interest rates than in the United States. Additionally, investments in Mexican stocks are in Mexican pesos. Accordingly, the market value of the securities in the portfolio must increase at a rate greater than the rate of any decline in the value of the peso against the US dollar in order to avoid a reduction in their equivalent value in US dollars.

The Fund may have a higher turnover rate resulting in higher transaction costs and higher tax liability, which may affect returns.

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