Market Overview

3 ETFs for Brazil's Stimulus (BRAQ, BRXX, FBZ)

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In a familiar approach seen in the U.S. and China, Brazil is employing stimulus measures to boost its sagging economy. The largest Latin American economy reported first-quarter GDP growth of just 0.2 percent, hardly on par with what investors expect from an emerging market and well below the 0.5 percent growth economists expected.

President Dilma Rousseff has rolled out an array of stimulus projects aimed at suppressing Brazilian unemployment (already low at 5.8 percent), moves that have her approval rating resting near 60 percent despite the country's economic slowdown, according to the New York Times.

To this point, Brazil's stimulus measures have yet to bare fruit for investors in ETFs such as the iShares MSCI Brazil Index Fund (NYSE: EWZ). The largest Brazil ETF by assets, EWZ has tumbled 11.4 year-to-date and 22.3 in the past 90 days. Increasing concerns about an economic hard landing in China, Brazil's largest trading partner, coupled with the slack performance of state-run oil giant Petrobras (NYSE: PBR) have plagued EWZ.

Given EWZ's exposure to Brazil's commodities-driven export story, investors should consider more domestically focused funds as a way of potentially benefiting from the country's stimulus plans.

EGShares Brazil Infrastructure ETF (NYSE: BRXX) Much has been made about global infrastructure spending. In 2011, a Bank of America Merrill Lynch report fanned the flames of this investment thesis by saying select emerging markets would spend up to $6 trillion on infrastructure projects over the next three years.

Brazil should be among the nations spending heavily on infrastructure in the coming years. BRXX is widely viewed as a play on Brazil hosting the 2014 World Cup and the 2016 Summer Olympics, but there's more. As the New York Times reported, so many Brazilian infrastructure projects have been approved at the same time, that just a fifth of the $7 billion budgeted for highway projects in 2012 has been spent.

Global X Brazil Consumer ETF (NYSE: BRAQ) While economic growth is cooling in Brazil, it is worth noting that consumer-related deal-making is flourishing, indicating companies are betting on a resurgent Brazilian consumer. Incomes are rising and interest rates are low, two fundamental factors that support a bullish outlook on the Brazilian consumer and BRAQ.

There is a bear case, though. Amid access to easy credit, the Brazilian consumer has already spent. Now he/she is looking at elevated personal debt and is paring spending to reduce that debt burden.

First Trust Brazil AlphaDEX Fund (NYSE: FBZ) The First Trust Brazil AlphaDEX Fund debuted last April as a potential rival to EWZ. That rivalry has yet to materialize, but it should because FBZ's weighting methodology and the index it tracks have generated superior performance.

The biggest risk with FBZ is a 22.2 weight to materials stocks, but on the upside, Petrobras is not nearly as prominent in FBZ as it is in EWZ. In addition, FBZ is 44 percent allocated to more the conservative consumer staples and utilities sectors. Year-to-date, FBZ has outperformed EWZ by 500 basis points.

For more on Brazil ETFs, click here.

Posted-In: Long Ideas News Sector ETFs Short Ideas Specialty ETFs Emerging Market ETFs Commodities Events Best of Benzinga


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