Brazil ETFs: Nine Ways To Play

by on August 20, 2010 | ETFs Mentioned:

Brazil has become one of the most popular investment destinations in recent years, as U.S. investors have begun to question their “home country bias” and tilt portfolios more heavily towards the fast-growing emerging markets. Once upon a time, options for exposure to Brazil were somewhat limited; most mutual funds and some of the first ETFs covering the country were dominated by a few mega cap stocks, essentially offering exposure to Brazil’s biggest banks and oil companies. But the growth of the ETF industry has given investors more options than ever before.

China is perhaps the superstar of the BRIC bloc, receiving a great deal of attention from international investors (and with good reason). But Brazil offers an intriguing opportunity as well; the country is rich in a wide variety of natural resources and in a unique position to thrive as a supplier of raw materials to the emerging world [see Brazil ETFs: Best Of The BRIC]. Moreover, Brazil’s clean energy revolution has been a largely overlooked accomplishment. Renewable energy accounts for more than 85% of domestically-produced energy, and many of the cars on the road run on sugarcane ethanol. In recent years the country has moved into wind power initiatives as well, looking to reduce the heavy reliance on hydroelectric power.

Much of the credit for Brazil’s booming economy must go to outgoing president Luiz Inácio Lula da Silva, who will step aside later this year to comply with constitutional term limits. He came to power amidst fears that “leftist policies would wreak havoc on the country’s economy,” writes Guillermo Martinez. But his popularity has skyrocketed, boosted by a string of sound economic policies. “Lula governed from a surprisingly centrist position. That helped his stature internationally as a statesman and made Brazil one of the world economic powers of the future.”

Brazil is now in the midst of a massive infrastructure upgrade, seeking to overhaul its roads, utilities, and ports ahead of two opportunities in the global spotlight later this decade (the 2014 World Cup and 2016 Olympics). Indicating confidence in the Brazilian government and economy, investors recently purchased $3.8 billion worth of zero coupon bonds, the largest auction of a single maturity that Brazil has ever experienced [see Brazil's Lagging Infrastructure; Time To Buy BRXX?].

While Brazil maintains strong growth prospects, the economy faces some unique challenges as the central bank takes steps to prevent overheating. Brazil has had challenges with inflation in the past, experiencing hyperinflation in 1994 when the consumer price index exceeded 5,000%.

Brazil ETF Options

For investors looking to play Brazil, there are a number of ETF options, each offering a unique risk/return profile. Below we profile nine funds that focus on various corners of South America’s biggest economy [for more investment ideas, sign up for our free ETF newsletter].

All Sizes Of Brazil ETFs

  • iShares MSCI Brazil Index Fund (EWZ): This fund is by far the most popular Brazil ETF, with assets of more than $9 billion and an average daily trading volume of almost 20 million shares. EWZ is designed to track the MSCI Brazil Index, a benchmark that has big weightings in mega cap banks and oil companies. EWZ charges an expense ratio of 0.63% [for EWZ's total performance check out the fund's fundamentals and charts].
  • Market Vectors Brazil Small-Cap ETF (BRF): This fund tracks the Market Vectors Brazil Small-Cap Index, a benchmark that measures the performance of publicly-traded small capitalization companies that are domiciled and listed on an exchange in Brazil. Compared to EWZ, this small cap ETF maintains more significant allocations to the consumer sector of Brazil’s market, and offers a way for investors to make more of a “pure play” on the Brazilian economy. BRF charges an expense ratio of 0.65%.
  • Global X Brazil Mid Cap ETF (BRAZ): This fund falls right between EWZ and BRF, tracking the Solactive Brazil Mid Cap Index. BRAZ is a relatively new fund, and offers exposure that varies in terms of both market cap and sector breakdowns from the other Brazil ETFs highlighted above. This fund charges an expense ratio of 0.69%.

Sector Specific Brazil ETFs

For investors looking to establish exposure to a particular sector of Brazil’s economies, there are a number of interesting options:

  • EG Shares Brazil Infrastructure Index Fund (BRXX): BRXX tracks the INDXX Brazil Infrastructure Index, a benchmark made up of 30 companies that represent Brazil’s infrastructure sectors [see Brazil Infrastructure ETF On The Rise]. This ETF could benefit from Brazil’s major infrastructure push as it gears up to host two major sporting events in coming years.
  • Global X Brazil Consumer ETF (BRAQ): The fund tracks the performance of the Solactive Brazil Consumer Index, a corner of the market often overlooked by large cap funds. Holdings of this ETF are spread across food and beverage, retail, and personal/household goods companies.
  • Global X Brazil Financials ETF (BRAF): The fund tracks the performance of the Solactive Brazil Financials Index, a benchmark that includes both large and small Brazilian banks. Major holdings for BRAF include the Banco Bradesco, Itau Unibanco Holding, Banco Do Brasil.  Since the funds inception it has lost 1.83% and charges an expense ratio of 0.77%.

Leveraged ETF Options

For more risk tolerant investors looking to amplify exposure to Brazil, ProShares offers two leveraged ETFs linked to Brazilian equities:

  • ProShares Ultra MSCI Brazil Fund (UBR): This fund offers 200% daily exposure to the MSCI Brazil Index, the benchmark to which EWZ is linked. Because Brazilian equities are often among the most volatile in the world, UBR can see some big price swings in a relatively short period of time.
  • ProShares UltraShort MSCI Brazil Fund (BZQ): BRQ is the bear counterpart to UBR, seeking to deliver daily returns equal to -200% of the same index.

Brazil’s Currency ETF

Options for investing in Brazil aren’t limited to equities; the WisdomTree Dreyfus Brazilian Real Fund (BZF) seeks to achieve returns reflective of both money market rates available to foreign investors and changes in value of the Brazilian Real relative to the U.S. dollar [see Currency ETFs: A Better Way To Play The BRIC]. Money market rates in Brazil are significantly higher than in the developed world, making this fund an intriguing option for investors looking to diversify stock-and-bond portfolios.

[For more ETF ideas make sure to sign up for our free ETF newsletter]

Disclosure: No positions at time of writing.