After a period of prolonged under-performance and what seemed like extreme pessimism in the country’s equity market, Brazil has staged something of a meteoric rally inside of twenty trading sessions.
The largest Brazil focused equity ETF, EWZ (iShares MSCI Brazil, Expense Ratio 0.60%), which has approximately $4.2 billion in assets under management, has finished up in fifteen out of the past seventeen trading sessions, and the fund has vaulted another 2.7% in the early going today.
In recent days, we have seen some trimming of long positions in the ETF into the recent strength, with more than $250 million leaving the fund via redemptions, and we noted the presence of May 46 put buyers as well yesterday (EWZ is trading with $48 handle today).
Top sector holdings within EWZ are in Financials, Materials, Consumer Staples, and Energy, and top holdings include Itau Unibanco Holding S.A. (7.98%), Ambev S.A. (7.49%), and Petroleo Brasileiro SA Petrobras (5.86%).
With the fund up more than 20% just in the trailing one month period one might be surprised to see net inflows year to date that are still on the negative side (>-$400 million) and in the trailing one year period, EWZ has seen a massive $2.5 billion flow out of the fund.
The bottom line is here, there seems to be a ton of ground to make up for those whom may have been under-allocated to Emerging Markets perhaps in general, and more specifically Brazil, especially if the country has potentially turned the corner.
Interestingly, in what from the surface looks like a beta rally based on the near parabolic move in EWZ, Small-Cap Brazilian equities have greatly lagged Mega and Large caps as represented in EWZ. Both BRF (Market Vectors Brazil Small Cap, Expense Ratio 0.60%) and EWZS (iShares MSCI Brazil Small Cap, Expense Ratio 0.60%) are up in sympathy with this Large Cap rally in Brazil, but have notably lagged year to date as well as in the trailing
one month.
Other important funds in this space that should receive more attention than ever given this unlikely rally in Brazil are BRZU (Direxion Daily Brazil Bull 3X Shares, Expense Ratio 0.95%) and BRZS (Direxion Daily Brazil Bear 3X
Shares, Expense Ratio 0.95%) and there is a host of other smaller, but specialized funds in the space as well.
iShares MSCI Brazil Capped ETF
For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.
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