Global X, the NewYork-based ETF issuer perhaps best known for its sector-specific China ETFs, bulked up its international product lineup today with the launch of the Brazil Mid Cap ETF (BRAZ). The new fund will track the Solactive Brazil Mid Cap Index, a benchmark designed to reflect the performance mid-market capitalization companies that are domiciled or have their main business operations in Brazil. BRAZ will be one of the first international mid cap ETFs on the market, making it a unique play for investors.
With ongoing chaos in Europe and the dawn of the “new normal” low-growth environment in the U.S., the appeal of emerging markets has surged in recent years, with Brazil attracting significant interest from international investors. Brazil is home to the largest national economy in Latin American and eighth largest economy in the world. Brazil is included in the BRIC bloc of economies that is expected to account for an increasingly large portion of GDP in coming decades, and investors are anxious to see see how the country prepares for the global spotlight that will come with the hosting of the 2014 World Cup and 2016 Olympics.
The launch of BRAZ fills a hole left by other ETFs offering exposure to the region. The iShares MSCI Brazil Index Fund (EWZ) invests primarily in mega-cap Brazilian companies, maintaining a tilt towards the financial and energy sectors. The Market Vectors Brazil Small Cap ETF (BRF) offers exposure to the other end of the size spectrum, focusing on small cap Brazilian stocks that tend to be more dependent on local consumption. Also offering exposure to Brazilian equities is the Brazil Infrastructure Index Fund (BRXX), an ETF focusing on the country’s rapidly-developing infrastructure industry (see Brazil’s Ambitions Infrastructure Plan).
The ETF industry has been praised for offering investors exposure to every corner of the globe, but may have received far too much credit for their contribution (see The Spain ETF’s Secret). While funds focusing on almost every major national economy are available, many focus on mega-cap equities that generate revenue from around the world (and have a tendency to be big banks and oil companies). Recent years have seen the introduction of a number of small cap international ETFs, including funds focused on China, Japan, Australia, Canada, Taiwan, and South Korea (see Guide To Small Cap International ETFs).
Options for exposure to mid cap stocks in international markets are hard to find. The WisdomTree International MidCap Dividend Fund (DIM) and SPDR S&P International Mid Cap ETF (MDD) offer broad-based exposure, but country-specific mid cap ETFs are a new innovation.
Under The Hood
The index underlying BRAZ contains approximately 40 companies with market capitalization in the range of $2 to $10 billion. Major holdings include cosmetics company Natura Cosmeticos, aeronautics firm Empresa Bras de Aeronautica, real estate firm Cyrela Brazil Realty, mobile tech company Tele Norte Leste, and food distributor Hypermarcas. The fund will be well diversified from a sector perspective, with utilities, consumer staples, and industrials receiving the most significant allocations.
BRAZ will charge an expense ratio of 0.69%
Disclosure: No positions at time of writing.