While the Brazilian economy sure is facing
some near-term headwinds, the long-term outlook is good.
Given the pounding some Brazilian investments have taken
you might think the country is a disaster. It may be time to
revisit one such ETF: BRF.
But let's consider for a moment that in 2011 Brazil overtook
the U.K. as the world's sixth-largest economy. Growth did slow
dramatically from 7.5% in 2010 to 2.7% in 2011 and expectations
for future growth vary. Brazil has been taking some measures
recently to stimulate its economy; lowering interest
rates for one. We'll have to wait and see how much
growth it really experiences.
For now at least that growth is still faster than the US or
Europe. In addition to overtaking the U.K. Brazil has a
per-capita GDP greater than both India and China. It has also
been reported that foreign direct investment
inflows increased by 87% to $48 billion in 2010, putting
the nation fifth in world capital inflows.
Plenty of challenges remain for Brazil however. In terms of
ease of doing business the country is ranked 126th in the world
by the World Bank. In terms of taxes it's ranked 150th.
Bureaucracy remains a problem as registering a new company can
reportedly take as long as two years.
Despite the economic slowdown and other challenges some
Brazilian investments have no doubt been beaten down enough and
are bottoming. One ETF in which I have successfully invested in
the past is the Market Vectors Brazil Small-Cap ETF (
). BRF seeks:
"to replicate as closely as possible, before fees and
expenses, the price and yield performance of the Market Vectors
Brazil Small-Cap Index (MVBRFTR), a rules-based, modified
market cap-weighted, float-adjusted index intended to give
investors exposure to Brazilian small-cap companies."
I like BRF and was an early investor in it when it first
traded back in May of 2009. It did very well for its first 18
months or so, rising from $25.00 to nearly $64.00 per share in
November of 2010, a 256% gain. I don't own it now, nor have I
for some time, but it is looking appealing once again. Since
that November high it has dropped to a current price of about
BRF is well diversified as illustrated by the sector
breakdown seen below. Paired up with its larger-cap cousin
the iShares MSCI Brazil Index ETF (
) you could build a tidy Brazilian portfolio.
- Consumer Discretionary 31.1%
- Industrials 21.2%
- Financials 12.5%
- Materials 6.8%
- Utilities 6.4%
- Health Care 5.6%
- Information Technology 5.3%
- Telecommunication Services 4.0%
- Energy 3.8%
- Consumer Staples 3.3%
The charts supports my thesis as well, at least for now. BRF
appears to have established both a short and long term support
level at $35.00 as demonstrated in the following three and
Considering that it has a dividend yield of 3.16%, BRF
definitely deserves a second look. Naturally a continued slowdown
or contraction of the Brazilian economy could bring the price
down further. So if you dip your toe back in BRF's water be
careful, keep an eye on it and preferably use defensive stop
orders to limit your risk.