The problem for the iShares MSCI All Peru Capped ETF (NYSEArca: EPU ) is not its 0.6% loss over the past 90 days. That is far better than the 4.5% shed by the iShares Latin American 40 ETF (NYSEArca: ILF ) over the same period. Rather, volume in EPU’s components is drying up.

“The average daily trading value on the Lima exchange fell to $6.1 million in June, the lowest since 2009,” Eduardo Thomson reports for Bloomberg, citing Credicorp data.

There is an upside to the volume downside in Peru. It could prompt companies, including some of the 25 held by EPU, to start repurchasing shares to bolster liquidity for Lima-listed shares, according to Bloomberg.

Based on EPU’s trailing three-month average daily volume of 42,000 shares, the ETF’s average daily dollar volume is $1.2 million over that period. Bloomberg notes that investors have steered away from Peruvian shares due to the market’s high concentration toward materials and mining names and tax issues.

EPU is reflective of Peru’s status as a major miner of gold, silver and copper. The ETF devotes 46.4% of its weight to the materials sector and another 30.1% to financial services stocks. No other sector commands more than 8.8% of the ETF’s weight. [Peru ETF Looks for More Upside]

And as volume has dried up in Peru, investors have departed EPU. The ETF had $267.7 million in assets under management as of Nov. 14, but that number was just $182.5 million as of July 1. On the bright side, several of EPU’s largest holdings trade in New York and offer decent average daily turnover.

For example, Credicorp (BAP) has 90-day average turnover of nearly 308,000 shares while Southern Copper’s (SCCO) traded nearly 1.25 million shares over that period. Buenaventura Mines (BVN) had volume north of 1.3 million shares over that time. Those are EPU’s three largest holdings, combing for over 44% of the ETF’s weight.

“While Global Markets Intelligence (GMI) stands by its largely upbeat assessment of the policy climate in Lima, it deems the political environment under the current president, Ollanta Humala, as potentially disruptive to constructive policymaking ahead of the 2016 presidential elections, dissuading GMI from retaining an overweight of Peruvian shares until the incumbent unequivocally commits his regime to policy stability,” said S&P Capital IQ in a recent research out in late 2014. [Peru ETF Could Benefit From Energy Investment]

iShares MSCI All Peru Capped ETF

ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of ILF.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.