Brazilian stocks are weakening as investors speculate on the potential winding down of monetary stimulus. Nevertheless, Brazil’s market turn around, an equity hedged exchange traded fund can be a better play.
The db X-trackers MSCI Brazil Hedged Equity Fund (NYSEArca: DBBR) has dipped 9.6% year-to-date, doing slightly better than the iShares MSCI Brazil Index Fund (NYSEArca: EWZ), which declined 13.8% so far this year.
The db X-tracker is designed to provide exposure to Brazilian equities while mitigating exposure to currency fluctuations in the Brazilian real. In contrast, EWZ does not hedge currency risks, so a weakening real can have a negative effect on the performance of EWZ.
The currency has depreciated from a March 8 high of 1.94 Brazilian reals to the USD to its current price of around 2.15BRL. The WisdomTree Brazillian Real Fund (NYSEArca: BZF) is down 7.9% over the past three months. [Another EM Currency Gets Some Relief…Sort Of]
In response to the rapid depreciation in the real, the Brazilian government removed the 6% IOF financial transaction tax on foreign investments into local bonds. [Brazil ETFs Lower After Financial Transaction Tax Removed]
Currently, the real currency is showing greater volatility as uncertainty over the Fed’s quantitative easing program.