3 Brazil ETFs To Play The Potential Rebound
A sluggish Brazilian economy has received a boost on news of a favorable August manufacturing PMI. Following the conclusion of the World Cup, conditions within the country’s manufacturing sector improved for the first time since March.
The PMI, which gauges operating conditions in the manufacturing sector, rose to 50.2 in August up from 49.1 in July. A reading above 50 signifies expansion in the manufacturing sector. The reading above 50 was the first time the Brazil PMI has showed expansion in four months.
The improvement could be a sign of better times ahead for Brazil, which saw its GDP fall by 0.8 percent in the first two quarters. Investors looking to play a potential rebound in the Brazilian economy have several ETFs to choose from. Three of the more popular ones are highlighted below.
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iShares MSCI Brazil Small-Cap ETF (NYSE: EWZS)
The EWZS provides exposure to 87 small-cap Brazilian companies from a plethora of sectors. The diversification among stocks and sectors helps offsets the characteristically risky nature of small-cap stocks from emerging markets.
The top three holdings in the ETF are Equatorial Energia at 5.2 percent, Companhia Hering at 5.1 percent, and MRV Engenharia E Participacoes coming in at 3.8 percent. Most investors have never heard of the companies in the ETF, which is not necessarily a bad thing.
With an expense ratio of 0.62 percent it’s on par with its competitors. After falling to an all-time low six months ago, EWZS has rebounded and rallied 24 percent from the low. Over the last year the ETF is up nine percent.
iShares MSCI Brazil Mid-Cap ETF (NYSE: EWZ)
The EWZ is made up of 74 mid- and large-cap Brazilian companies. With its top four holdings making up roughly 30 percent of the total allocation, it is slightly less diverse than the EWZS. Its top three holdings are Itau Unibanco Holding at 9.2 percent, Petrobras Petroleo Brasileiro at eight percent and Banco Bradesco (NYSE: BBD) at seven percent.
EWZ has an identical expense ratio to its small-cap counterpart at 0.62 percent. Since bottoming out at a four-year low six months ago, EWZ has gained 20 percent. Over the last 12 months the ETF is up 27 percent.
Global X Brazil Financials ETF (NYSE: BRAF)
The BRAF tracks 29 companies in Brazil’s financial sector. It seeks to provide investment results corresponding with the Solactive Brazil Financials Index. Its top three holdings include Itau Unibanco (NYSE: ITUB) at 10.4 percent, Banco Bradesco at 10.3 percent and Banco Santander Brazil (NYSE: BSBR) at 9.1 percent.
BRAF has had an impressive six months -- up almost 40 percent -- and is also up just under 37 percent on the last 12 months. An expense ratio of 0.77 percent makes it slightly more expensive than other Brazilian ETFs.
Brazil was once the darling of the BRIC countries, but political and economic issues have stunted growth the last few years. The action lately has been promising, and if a new president is elected in early October it could give the economy and stock market a big boost.
Investing in the country at current levels is a bet a turnaround is coming in one of the largest emerging markets in the world.
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