Can Brazil’s Economy Stage a 2021 Comeback?

Exchange-traded fund (ETF) investors looking for international exposure via emerging markets may want to consider Brazil, especially if the country’s economy can stage a comeback next year. However, according to the International Monetary Fund (IMF), there’s still a lot of work to do.

“The economy is projected to shrink by 5.8 per cent in 2020, followed by a partial recovery to 2.8 per cent in 2021,” the IMF said in its annual report on Latin America’s largest economy, according to a Deccan Herald article.

The article noted that the IMF report “praised the right-wing government of President Jair Bolsonaro for its response to the economic crisis prompted by the coronavirus.”

“The strong policy response averted a deeper economic downturn, stabilized financial markets, and cushioned the effects of the pandemic on the poor and vulnerable,” the report said.

In the meantime, for ETF investors looking to get exposure to Brazil as a potential value should the country stage a comeback in 2021, here are three funds to consider with varying strategies and market caps:

1. iShares MSCI Brazil Capped ETF (NYSEArca: EWZ): EWZ seeks to track the investment results of the MSCI Brazil 25/50 Index, which consists of stocks traded primarily on B3 (the largest Brazilian exchange). The index 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.
2. WisdomTree Brazilian Real Strategy ETF (NYSEArca: BZF): BZF seeks to achieve total returns reflective of both money market rates in Brazil available to foreign investors and changes in value of the Brazilian real relative to the U.S. dollar. The fund normally invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in investments whose combined performance is tied economically to Brazil. BZF generally will maintain a weighted average portfolio maturity of 90 days or less with respect to the money market securities in its portfolio.
3. VanEck Vectors Brazil Small-Cap ETF (BRF): seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® Brazil Small-Cap Index. The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index. The index includes securities of Brazilian small-capitalization companies. A company is generally considered to be a Brazilian company if it is incorporated in Brazil or is incorporated outside of Brazil but has at least 50% of its revenues/related assets in Brazil.

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