Brazil ETF Options Beyond EWZ
October 15th 2012 at 10:01am by Tom Lydon
Brazil, one of the pillars of emerging market growth, has been an attractive locale for investors to diversify their international exposure. While investors have focused on the $8.7 billion iShares MSCI Brazil Index Fund (NYSEArca: EWZ), there are also other Brazil exchange traded funds to consider.
The iShares MSCI Brazil Index Fund follows the MSCI Brazil Index, a market-cap weighted index that tracks Brazilian stocks. Because of its weighting methodology, the fund leans toward the state-run oil company Petrobras and mining firm Vale, which account for about a third of the ETF’s holdings. The financials sector accounts for the largest allocation at 25.0%, followed by energy 20.0% and materials 18.9%. EWZ has a 0.59% expense ratio.
Investors can also take a look at First Trust Brazil AlphaDEX Fund (NYSEArca: FBZ) as an alternative. This ETF follows a modified equal-weighting methodology that selects companies based on value and growth factors. As such, it has about a 66% weighting in mid-cap stocks and no single holding accounts for more than 3.9%. The First Trust Brazil AlphaDEX Fund’s largest sector allocations include consumer staples 15.8%, materials 15.6% and utilities 15.2%. FBZ has a 0.82% expense ratio.
While the Global X Brazil Mid Cap ETF (NYSEArca: BRAZ) tracks the Solactive Brazil Mid Cap Index, the ETF also includes significant allocations to large caps. BRAZ holds about 62% in large-cap Brazilian stocks and 37% in mid-caps, according to Morningstar. Top sector allocations include utilities 25.5%, telecommunications 11.5% and financials 10.9%. BRAZ has a 0.69% expense ratio.
If you believe in the Brazil’s growing domestic economy, smaller companies may be a better fit.
The Market Vectors Brazil Small-Cap ETF (NYSEArca: BRF) tries to reflect the performance of the Market Vectors Brazil Small-Cap Index, which provides exposure to Brazilian small-caps. As such, the fund has a higher allocation in consumer discretionary names at 33.2%, followed by industrials at 22.2% and financials at 12.3%. BRF has a 0.59% expense ratio.
Along with BRF, investors may look at the iShares MSCI Brazil Small Cap Index Fund (NYSEArca: EWZS), which tracks the MSCI Brazil Small Cap Index. Top sector allocations include consumer discretionary 34.8%, industrials 23.4% and financials 18.4%. Like the Market Vectors Brazil Small-Cap ETF, EWZS also leans toward domestically oriented firms. EWZS has a 0.59% expense ratio.
For those seeking quick actions in Brazilian equities or a short-term hedge, investors may look at leveraged and inverse options. Leveraged and inverse ETFs are meant as short-term investments as they may not perfectly track the underlying holdings over an extended period due to compounding issues as a result of daily rebalancing.
The ProShares Ultra MSCI Brazil (NYSEArca: UBR) provides twice, or 200%, the daily performance of the MSCI Brazil Index, and the ProShares UltraShort MSCI Brazil (NYSEArca: BZQ) generates twice, or 200%, the inverse of the daily performance of the MSCI Brazil Index. Both funds have a 0.95% expense ratio.
For more information on Brazil, visit our Brazil category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.