Emerging markets were and still are a prime concern amid the Covid-19 pandemic, but one of the largest EM countries, Brazil, looks to be making some headway. It begs the question, however: is there more room to run for Brazil and in turn, will it boost Brazil-focused exchange-traded funds (ETFs)?

One mitigating factor for growth is the country’s high debt levels.

“Brazilian stocks have charged higher since plumbing their pandemic March low, propelled by a strong rebound in commodity prices, record-low interest rates, and the promise of ongoing economic structural reform,” an Investopedia article noted. “Looking ahead, analysts have expressed concern about how the country will phase out its pandemic-related fiscal stimulus, given that Brazil already had a high level of government debt before the health crisis began.”

“Debt is already supposed to rise from 80% to 100% of gross domestic product (GDP),” said T. Rowe’s Verena Wachnitz, per Barron’s. “A lot of the easy money from the rebound has passed,” she added.

^MSBR Chart

^MSBR data by YCharts

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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