Throwing in the Towel on Brazil ETFs

“Move along, there’s nothing to see here.” That could easily be the sentiment of beleaguered Brazil equity bulls as stocks in Latin America’s largest economy endure a dismal start to 2015.

Coming into Wednesday’s session, only the iPath Dow Jones-UBS Natural Gas Total Return Sub-Index ETN (NYSEArca: GAZ) with a loss of 27.4% has performed worse on a year-to-date basis than the Market Vectors Brazil Small-Cap ETF (NYSEArca: BRF) among non-leveraged ETFs on a year-to-date basis. The iShares MSCI Brazil Capped ETF (NYSEArca: EWZ), the largest Brazil ETF by assets, has done nothing to elicit investors’ confidence, either.

With Wednesday’s loss of 2.8%, EWZ is now lower by 10% this year. That tumble is enough to have EWZ residing at its lowest levels in six years. While that is not an all-time low, EWZ’s Wednesday weakness is enough to make it just one of 10 ETFs that have hit new 52-week lows today. Including EWZ, four of those 10 ETFs are Brazil funds. Today’s new all-time low list for ETFs is populated by just six ETFs, three of which are Brazil funds, including BRF. [Dismal Start to 2015 for LatAm ETFs]

Political problems continue looming large for EWZ, BRF and rival Brazil ETFs. Shares of Petrobras (NYSE: PBR), Brazil’s state-run oil giant are off 16.4% year-to-date and reside near 11-year lows as the company is the focal point of major graft probe that has some speculating about impeachment for Brazilian President Dilma Rousseff.

While a Rousseff impeachment is unlikely, there is no denying that ordinary Brazilians and financial markets are blaming Rousseff for corruption at Latin America’s largest publicly traded oil company. Making matters worse is that it is now widely known that Rousseff had ample opportunity to stop graft at Petrobras, which via two securities combines for 6.3% of EWZ’s weight, and ignored the problem. [Petrobras Pushes Brazil ETF Lower]

“A Reuters review of a 2009 federal investigation of Petrobras, and interviews with those who conducted it, indicates Rousseff missed opportunities to stop the graft before it erupted into a crisis so big it could push Brazil’s slow-growing economy back into recession next year,” Reuters reported. Rousseff served as Petrobras chairwoman from 2003 to 2011.

Though it would appear obvious given two-year losses of 62% for Petrobras and 41.7% for EWZ, respectively, some fund managers are providing investors with an important reminder: 2015 is likely to be a dreadful year for Brazilian equities.