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Happy Birthday To An Important Emerging Markets ETF

July 11, 2018 10:06 am
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With the World Cup finals looming, the following is not the occasion Brazil was hoping to celebrate, but there is a relevant milestone to acknowledge.

On Tuesday, the iShares MSCI Brazil ETF (NYSE:EWZ), the largest exchange traded fund dedicated to stocks in Latin America's biggest economy, turned 18. 

What Happened

Over its 18 years on the market, EWZ has made investing in Brazil more accessible to a broader swath of investors, providing a liquid price discovery instrument for a market that was previously hard to access for many ordinary investors outside of Latin America.

“Investors use EWZ as a financial instrument and preferred access vehicle for Brazil, demonstrating how country ETFs can play a critical role in providing investors access and liquidity in challenging-to-trade markets,” according to BlackRock, the parent company of iShares.

Why It's Imporant

Brazil can be a difficult market to navigate.

Since its inception on July 10, 2000, EWZ is higher by nearly 177 percent. On its own, that sounds alright, but the MSCI Emerging Markets Index is higher by 416.5 percent over the same period. Additionally, EWZ has been significantly more volatile than the MSCI benchmark over that period.

EWZ has a three-year standard deviation of almost 35 percent. Over the past three years, EWZ has been much more volatile than comparable China, India and Russia ETFs. Still, EWZ has effectively given U.S. investors access to an important developing economy, providing liquidity and tight spreads even during times of market stress.

“During Brazil’s market closure for a public holiday on Jan. 25, EWZ was a key access vehicle for investors seeking exposure to Brazil as news of President Lula’s corruption conviction drove trading volumes to all-time highs,” according to BlackRock.

What's Next

As of July 10, EWZ had $6.8 billion in assets under management, making it one of the largest emerging markets single-country ETFs trading in the U.S. Importantly, average daily dollar volume in the fund has grown exponentially in recent years.

“In its first five years of trading, from fund launch in July 2000 through the end of 2005, EWZ traded $9.5 million per day on average on exchange. In the trailing five years, from January 2013 until today, EWZ trades an average of $800 million on exchange per day — an increase of over 84x,” BlackRock said. 

EWZ holds 54 stocks. The financial services and materials sectors combine for over 54 percent of the fund's weight.

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