After posting strong growth in the previous few years, 2012
turned out to be a turning point for Brazil, as the nation
experienced a huge setback in terms of growth. If that wasn't
enough, the Brazilian real depreciated by more than 10% against
the dollar in 2012, further adding to the country's woes (
Time to Worry about Brazil ETFs?
However, in this gloomy environment, the positive aspect of
the economy was low unemployment levels when compared with other
developed countries thanks to the increase in government
expenditure and policies to stimulate consumption.
This year the economy may be poised for somewhat better growth
than 2012 as the government continues to take necessary measures
to stimulate the economy and make it more competitive.
With this aim, the central bank of the country systematically
reduced the interest rates. In order to increase liquidity,
reduce consumers' debt burden and encourage investments, interest
rates were lowered to the level of 7.25% (
Are Investors Abandoning Brazil ETFs?
The effort to reboot the economy saw the government
undertaking a number of stimulus measures. Infrastructure
spending is also on an uptrend as the country prepares to host
the 2014 World Cup and the 2016 Olympic Games.
Additionally, manufacturing activity in Brazil, which got
arrested a few years back due to a lack of demand and rising
inventory levels, is once again set to rebound in 2013. A reduced
tax burden on companies, lower pay roll tax and more investment
on infrastructure by the government are expected to bring back
the pace in manufacturing activity (
Brazil ETFs: More Trouble On the Horizon?
Furthermore, the devalued currency should reinvigorate export
activity leading to improvement in international trade and growth
in export of manufactured goods. And as employment remains at a
good level and the interest rate is declining, domestic spending
should go up resulting in consumers coming back to the
Although the measures do not suggest a bull run in the
economy, at least the economy appears to rebound in 2013.
Improved infrastructure and elimination of other trade barriers
could accelerate Brazil's economic growth rate and raise its
For investors willing to play this optimism in the economy in
basket form, we have briefly highlighted a few of the
tracking the economy (
The Comprehensive Guide to Brazil ETFs
MSCI Brazil Index Fund (
MSCI Brazil Index Fund is the oldest and the most popular ETF
which provides exposure to the Brazilian economy. The product
appears to be liquid as more than 12 million shares change hands
on a daily basis and provides exposure mostly to the large cap
stocks of Brazil.
The fund invests its $9.2 billion of net assets in 83 stocks
with highly concentrated exposure in large cap equities. As much
as 53.4% of its assets go towards the top ten holdings. Vale,
Itau Unibanco Holding and Petrobras (
) occupy the top line of the fund (
Forget Petrobras with These Brazil ETFs
Among the sectors that the fund is most concentrated in,
Financials and Materials hold the lion's share making up 45.9% of
the total investment. For the investment made in the ETF, the
investor pays an expense ratio of 60 basis points.
The fund delivered a negative return of 21% over a period of
one year impacted by the slowdown in the economy.
Market Vectors Brazil Small-Cap ETF (
In order to have a pure play in the Brazilian economy, Market
Vectors Brazil Small-Cap ETF was introduced which provides
exposure to the small cap equities of the Brazilian market.
The fund holds a total of 74 small cap stocks in which it
invests an asset base of $586.4 million of which 31.5% is
invested in the top 10 holdings. So unlike EWZ, the fund appears
to be diversified with assets not just concentrated in the
top holdings but also spread among other companies beyond
the top holdings (
Do Country ETFs Really Provide
Among the different sectors, consumer discretionary and
industrials occupy the top two positions with 56.8% of investment
made in these two categories. The fund charges a premium of 59
basis points for the investment.
Despite a slowdown in the economy, it seems that the small
caps of the region performed a bit better, losing just 8% in the
past year and adding almost 10% in the past three month period.
Infrastructure Index ETF (
As Brazil looks to improve its infrastructure, investors
should look to invest in The Brazil Infrastructure Index ETF
(BRXX) for a timely exposure.
BRXX holds a total of 30 stocks. The fund has a total asset
base of $81.2 million of which 51.8% is invested in the top 10
holdings. A high concentration level in the top 10 holdings
suggests that the fund is not spread among other companies.
Among sectors, the fund has made double-digit allocation in
electricity, gas, water and multiutilities and Real Estate
Investment & Services. The fund has been beaten down as well
over the past year, but has added about 3% in the trailing three
month period, along with paying a sizable yield.
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MKT VEC-BRZL SC (BRF): ETF Research Reports
EMERG-GS BRAZIL (BRXX): ETF Research Reports
ISHARS-BRAZIL (EWZ): ETF Research Reports
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