Brazil: Two Different ETFs to Consider

by: Soos Global Capital
My recent article entitled “Throwing a Brick at the BRICs? Not so fast.” drew quite a bit of interest (offline) from readers, specifically on how, if they so chose, to best invest in Brazil. It highlights many of the issues that one ought to consider before investing in Brazil, or more broadly, within emerging markets assets.
While there are a number of ways and each investor has to opine and decide for themselves as to what’s most appropriate for their unique financial profile, risk tolerance and portfolio goals, for informative and thought-provoking purposes, I pointed to the two ETFs that I mentioned in the article, namely, EWZ and BRXX.
The former has been the more traditional way to play Brazil, largely because it contains some of the country’s biggest companies, many of whom are highly dependent on the global economy. Names such as Petrobras (NYSE:PBR) (Energy), Vale (NYSE:VALE) (Materials), Itau (Financials), Bradesco (NYSE:BBD) (Financials), Bovespa (Financials), BRF Brazil Foods (NYSE:BRFS) (Consumer Staples) and Gerdau (NYSE:GGB) (Materials) were among the top holdings as of 11/30/2010 (Source: iShares). Many of these companies have substantial businesses and/or do substantial business outside of Brazil. As a result, global commodity prices, global demand, currency valuations, etc., all play a meaningful part of the anticipated return of these names.
The other ETF, BRXX, is relatively new (Inception: 2/24/2010), and is focused more on domestic Brazilian companies involved in infrastructure within the country, therefore, seemingly less impacted by the global factors mentioned above. With names that are less well known among global investors such as Cia de Concessoes Rodoviarias, and Ultrapar Participacoes and Tractebel Energia, this ETF’s biggest weightings include roughly 22% in the electricity sector, 14% in gas, water and utilities and 10% in industrial transportation (Source: EGShares).

Disclosure: I am long PBR, BRXX, EWZ, VWO, FXI.

Additional disclosure: I also own various stocks within VWO, SPY and QQQQ. Positions may change at anytime without notice.

(Please note: This article is solely meant to be thought provoking and is not in any way meant to be personal investment advice. Each investor is obligated to opine and decide for themselves as to the appropriateness of anything said in this article to their unique financial profile, risk tolerances and portfolio goals).

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