There’s no doubt that the ETF explosion in the U.S. is unlike any other. In places like Brazil, the industry is still in its infancy. Nonetheless, global investment firm BlackRock has spotted an opportunity in the nascent Brazil ETF market, which should bode well for funds like the iShares MSCI Brazil Capped ETF (EWZ).

EWZ seeks to track the investment results of the MSCI Brazil 25/50 Index. The fund invests at least 95% of its assets in the securities of its underlying index and in depositary receipts representing securities in its underlying index.

The index, consists of stocks traded primarily on B3 (the largest Brazilian exchange), is a free float-adjusted market capitalization-weighted index with a capping methodology applied to issuer weights so that no single issuer of a component exceeds 25% of the underlying index weight, and all issuers with weight above 5% do not cumulatively exceed 50% of the underlying index weight.

EWZ gives investors:

  1. Exposure to large and mid-sized companies in Brazil
  2. Targeted access to the Brazilian stock market
  3. Use to express a single country view

EWZ Chart

BlackRock Moving into Brazil

Speaking specifically to BlackRock’s ambitions in Brazil, a Bloomberg article said: “BlackRock Inc. is unveiling new products that give Brazilian investors access to international exchange-traded funds, in a push to popularize index-based strategies in the South American country.”

“The world’s largest asset manager will open up some of its iShares ETFs through locally listed Brazilian depositary receipts, or BDRs, according to the New York-based firm. B3 SA, the country’s sole exchange operator, will list them,” the article added.

“There’s tremendous potential,” said Dominik Rohe, head of Latin America for BlackRock, who noted the rising interest in ETFs from pension funds of Brazil’s neighboring countries. “In Brazil it will take time — this is not something we expect will happen tomorrow or in a couple of months. For us this is a longer term plan.”

ETFs in Brazil

Furthermore, BlackRock’s move in Brazil “will give access to 37 additional ETFs for local investors through newly listed BDRs, expanding on the five ETFs it lists locally. The new products are mostly equity-based, including industries like aerospace and biotechnology, and sustainable strategies.”

“Brazilian investors haven’t warmed to ETFs like in other parts of the world,” the article said. “Fewer than two dozen equity ETFs are listed in Brazil, even though the country boasts a sizeable asset-management industry. Of the 5.8 trillion reais ($1.1 trillion) invested in funds, only 0.5% are invested in ETFs, according to data from the local capital markets association Anbima.”

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