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Brazil's Stock Market Rally Has Helped These 2 Leveraged ETFs Have Incredible Months

July 24, 2017 12:25 pm
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Brazil's Stock Market Rally Has Helped These 2 Leveraged ETFs Have Incredible Months

Brazilian assets have been on a mini surge of late. The Brazil Bovespa Stock Index is up over 6 percent over the last four weeks, and part of that rally has come on the heels of news that former President Luiz Inacio Lula da Silva will be serving 10 years in prison on corruption charges.


The conviction, which was reported on July 12, came after da Silva was accused of receiving about $1.1 million from a construction company for a beachfront property in exchange for government contracts. Da Silva was a towering figure in Brazilian politics from 2003-2010, and he oversaw a period of growth that saw the Bovespa rise over 360 percent during his term.


The ensuing rally in Brazilian stocks has been a boon for some leveraged exchange traded funds (ETFs), namely the Direxion Daily MSCI Brazil Bull 3X Shares (NYSEARCA:BRZU) and the Direxion Daily Latin America Bull 3X Shares (NYSEARCA:LBJ). BRZU and LBJ are two of the eight triple-leveraged bullish ETFs focusing on emerging markets offered by Direxion, one of the largest issuers of geared and inverse ETFs. 


Gains Keep Coming


BRZU is up more than 22 percent month-to-date, making it the best-performing member of Direxion's stable of leveraged bull ETFs this month. LBJ is no slouch. The triple-leveraged Latin America has posted July gains of about 21 percent, making the second-best Direxion leveraged bull ETF behind BRZU since the start of July.


LBJ looks to deliver triple the daily returns of the S&P Latin America 40 Index. While that index features exposure to five countries, Brazil and Mexico, Latin America's two largest economies, combine for nearly 84 percent of the index's weight, according to Direxion data


BRZU tries to deliver triple the daily returns of the MSCI Brazil 25/50 Index, an index that looks to cover 85 percent of Latin America's largest equity market.


Doing It The Right Way


Brazil is one of the most volatile emerging markets, which serves as reminder regarding proper use of ETFs such as BRZU and LBJ. That being these ETFs are intended to be short-term, intraday trades, not long-term investments.


Recent flows data suggest traders are doing just that with BRZU and LBJ. Outflows from these products are perhaps more signs of prudence by the traders using BRZU and LBJ and not waning enthusiasm.


Over the past month, BRZU and LBJ have averaged outflows on a daily basis, but data indicates some of that money could be flowing to other leveraged international ETFs.


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