More than seven months into the year, it is now widely known
that emerging markets
have struggled. Brazil funds, former darlings of the emerging
markets ETF lot, have been among the most egregious
Not only has the iShares MSCI Brazil Capped ETF (NYSE:
) been the worst performer among the four major funds tracking
the BRIC nations, EWZ has
been plagued by steep outflows
. Year-to-date, investors have pulled $2.3 billion from EWZ, the
largest Brazil ETF, ranking the fund seventh on the top-10 list
of worst year-to-date outflows, according to BlackRock data.
EWZ now has a tempting 30-day SEC yield of 3.21 percent and a
trailing 12-month yield of nearly 3.1 percent, but investors may
want to think twice before embracing Brazilian large-caps as
legitimate dividend plays.
New ETF Brings Dividend Growth Concept to
While U.S. payouts are on the rise, the same cannot be said of
Brazilian dividends. "Markit Dividends expect an 8% fall in
pay-outs to shareholders to 60 billion Brazilian real this year,"
said the research firm
in a report published last week
a pair of usual suspects
that are problematic for Brazilian equities on the dividend
front. Those being state-run oil giant Petrobras (NYSE:
) and Vale (NYSE:
), the world's largest iron producer.
"The decline in the aggregate change over 2012 was primarily
related to cuts from Petrobras, Vale and most Utility companies
(who were forced to cap their charges)," said Markit.
Two Petrobras securities and two Vale securities combine for
almost 20.7 percent of EWZ's weight. The utilities sector is 6.7
percent of the $5.55 billion fund's weight,
according to iShares data
There is more evidence to suggest other emerging markets
currently stand as superior dividend destinations compared to
published by WisdomTree last month
indicates Brazil is just 2.1 percent of the WisdomTree Global
That puts Latin America's largest economy in a tie for second
with Russia for largest weight to a developing economy in that
index, but Brazil was just one of three emerging markets to see
dividend stream decline
. South Africa and Taiwan were the others.
In the WisdomTree Global Dividend Index, Brazil is merely the
third-best emerging markets dividend payer in dollar terms,
trailing China and Russia. While Brazil's payouts have been
declining, countries such as Thailand and Russia have been
showing impressive growth.
Still, hope is not entirely lost for Brazilian payouts. Credit
growth could spur dividend increases from Brazilian banks, said
Markit. Financials are EWZ's largest sector weight at almost 27.5
percent and the Global X Brazil Financials ETF (NYSE:
) has a trailing 12-month yield of almost 3.7 percent.
Brazilian "Sectors with the highest expected rate of dividend
growth Y-o-Y are Consumer Discretionary, Industrials, and
Financials with 34%, 25%, and 19% increases respectively," said
Industrial and discretionary names combine for about 11.6
percent of EWZ's weight. The Market Vectors Brazil ETF (NYSE:
) allocates over 37 percent its weight to discretionary stocks
while industrials and financials combine for another 27.5
percent, although BRF's 30-day SEC yield is just 1.77
For more on ETFs, click
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advice. All rights reserved.
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