Shares of Petrobras (NYSE:
), Brazil's state-controlled oil giant, are plunging by 6.5
percent today, extending a bearish run that has sent the stock
below its December 2008 lows.
Typically, a decline of this magnitude by Petrobras would be
problematic for the iShares MSCI Brazil Index Fund (NYSE:
) because the largest ETF tracking Latin America's largest
features a 12.7 percent weight to the downtrodden
In fairness to EWZ, which is home to $9.2 billion in assets
under management, investors seem to be recognizing that the ETF
has a story to tell beyond Petrobras. Maybe it is the 27.1
allocation to Brazilian banks or the 15.4 percent weight consumer
staples names. Whatever the reason may be, EWZ is only down
fractionally today despite Petrobras's woes.
That does not mean the stock's slide following a downbeat
earnings report and dividend cut is not plaguing other
. After the close of U.S. markets Monday, Petrobras reported
increased quarterly Not Just EWZ: Petrobras Plaguing Other
ETFsprofits, but most of the increase was attributable to the
sale of Brazilian Treasuries.
Worse yet, the company said its exploration and production
costs surged 43 percent in the fourth quarter.
At the end of 2012, Petrobras' debt rose to 2.77 times
earnings before interest, taxes, depreciation and amortization
(EBITDA), above the company's own internal limit of 2.5 times
. That level could rise this year even after Petrobras said it
will cut its dividend paid to common stock holders.
Petrobras' current dividend yield of 1.3 percent is less than
half of Chevron's (NYSE:
). At 4.8 percent, BP (NYSE:
) feature a yield that is nearly quadruple Petrobras. Royal Dutch
Shell (NYSE: RDS-A) and Total (NYSE:
) each yield 4.7 percent.
None of this is good news for Petrobras and while EWZ appears
to be shaking off these glum headlines, other ETFs with
significant weights to the stock are not. The EGShares Energy
GEMS ETF (NYSE:
) is lower by half a percent on volume that looks poised to
eclipse the daily average.
features a 7.1 percent weight to Petrobras
, making the stock the ETF's third-largest holding.
To be fair to OGEM, the ETF devotes over 52 percent of its
weight to Russian and Chinese energy firms and it is those
stocks, such as Gazprom and Cnooc (NYSE:
), that act as the primary driver's of the fund's returns.
Additionally, OGEM had jumped over five percent in the past three
months prior to Tuesday. Over the same time, Petrobras had
plunged 17 percent.
On above average turnover, the Guggenheim BRIC ETF (NYSE:
) is also being dragged lower by Petrobras and it is easy to see
why. EEB is a BRIC ETF, in theory anyway.
In reality, Brazil alone represents 51.6 percent of the fund's
weight and two Petrobras securities, both found among the ETF's
top-10 holdings, combine for over 10 percent of the ETF's weight.
EEB, which has over $304 million in assets under management, was
up just one percent year-to-date heading into Tuesday's trading
One obscure ETF with a large weight to Petrobras has gotten
lucky today. The iShares MSCI Emerging Markets Energy Sector
Capped Index Fund (NYSE:
), which devotes 12.5 percent of its weight to the oil company,
has not gotten around to trading.
EMEY, like EEB, is heavy on Russian and Chinese oil names so
the fund has the potential to fight through some Petrobras
problems over time. However, a 12.5 percent weight to the stock
is a near-term hurdle, that is assuming EMEY gets around to
trading sometime soon.
For more on ETFs, click
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