Investing In Brazil's Upcoming Infrastructure

Includes: BRXX, BZF
by: Mary Daniel

The announcement to bring the 2016 Olympics to Rio de Janeiro, Brazil, has brought about big changes in the area’s slums, or favelas. The police have been working with special forces commandos to regain control of these heavy trafficking areas. The commandos move in to clear it out and the police come in and set up base. They are also bringing in health care and electricity to these areas. The residents are happy to see these changes and the traffickers are on the run. Positive things are happening in Brazil.

Just this past week they took over one of Rio’s largest slums and also arrested one of the most wanted drug traffickers in the process. Perhaps the most surprising part of this story was a policeman turning down a 6 figure bribe. Now that is progress. Everything appears to be on the way up for Brazil. They are making all of the changes necessary to be taken seriously by the outside world. With electricity being brought into the slums that were once untouched, this would be a wonderful time to invest in Brazil’s infrastructure.

What better way to do so than to invest in EGShares Brazil Infrastructure ETF (NYSEARCA:BRXX)? The ETF’s top holdings consist of energy, phone, and sanitation companies. Utilities make up the majority of the fund’s holdings, companies that will see an increase in business due to the cleanup of the slums. Also in the top holdings is Embraer S.A., manufacturer of one of the most dependable and popular regional jets. Currently, the ETF is trading at $21.89, close to the 52 week low of $18.79. Although this is a fairly new ETF (its inception date is 02/24/2010), the fund did see a 4.67% yield at the end of last year. And it is currently trading below market value.

The fund’s strategy is to seek results that correspond with the performance of the Indxx Brazil Infrastructure Index, which consists of 30 leading companies determined to be representative of Brazil’s infrastructure industries. BRXX has seen a slight decrease in recent months that makes it a great time to buy into this fund. The fund actually follows the same curvature of decline as Wisdom Tree’s Dreyfus Brazilian Real Currency ETF (NYSEARCA:BZF) in the recent months of a slight decline. Though BZF’s was not as grave, it is economically logical for a slight decline in currency to result in a slightly larger decline of infrastructure. Since these two are following the same pattern, it would not seem cause for alarm. BZF (yellow) and BRXX (blue) YTD

The fund appears to be well-managed and grounded in Brazil’s future endeavors, especially as Brazil continues preparations for the 2016 Olympics. The preparations, as already evidenced, are sure to include the cleanup of many large slums and ousting of drug traffickers. As the government and police move to gain further control of the city, the customers for infrastructure companies will increase exponentially. This makes it a great time to get in on the ground floor of Brazil’s infrastructure revolution.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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