Compared to last year, 2014 has been a banner year for Brazil exchange traded funds.
Buoyed by President Dilma Rousseff’s faltering poll numbers ahead of October’s national election and a resurgent Petrobras (PBR), among other catalysts, the iShares MSCI Brazil Capped ETF (EWZ) is up 13.3% year-to-date. That makes the largest Brazil ETF the second-best performer among the four major BRIC single-country ETFs. [Poll Results Lift Brazil ETFs]
The Market Vectors Brazil Small-Cap ETF (BRF) has posted a 2014 gain of almost 6%, but the EGShares Brazil Infrastructure Index Fund (BRXX) has, until recently, struggled to keep pace with EWZ and BRF.
To be fair, BRXX is in rally mode ahead of next month’s World Cup. The ETF has surged 15.4% over the past three months, but that upside is more likely by virtue of the broader rally in Brazilian equities than anticipation of World Cup infrastructure projects.
BRXX has lost 17.4% since its Feb. 2010, proving the ETF, through no fault of its own, has not benefited from the thesis that Brazilian infrastructure would swell ahead of World Cup and 2016 Summer Olympics. [World Cup Prep Hasn't Lifted Brazil ETFs]
Brazil’s preparation efforts for the World Cup have been so suspect that one point, there was rampant speculation FIFA would pull the tournament from Latin America’s largest economy. Several workers have died while working on Brazilian stadiums and the government there has proven ineffective at delivering on the promise of pre-World Cup and Olympics largess.
For example, government officials promised $1.3 billion in infrastructure projects for Natal, Brazil. “Natal would build a state-of-the-art new arena, authorities said, and all manner of additional infrastructure, too. They promised a light rail network, a new hospital, a beachfront facelift and wheelchair-friendly sidewalks,” Reuters reported. Less than a month before the World Cup starts, Natal has seen less than of the promised $1.3 billion spent.
It is anecdotes like that have hampered BRXX. The ETF is up 1.7% in the past month, a far cry from the 20% delivered by the EGShares India Infrastructure Index Fund (INXX) over the same period. [Election Results Could Boost India Infrastructure ETF]
There is still hope and a bull case for BRXX. Fitch Ratings says that while Brazil’s airports are prepared to handle World Cup traffic, the country’s “inner-city transportation network lags that of airport infrastructure.” Perhaps a hard World Cup lessons will bolster infrastructure ahead of the 2016 Summer Olympics.
Additionally, BRXX’s underlying index has a dividend yield of 4.91%. Brazil is expected to post the largest dividend growth among the BRIC nations this year with payouts there rising by 13.6% or $40 billion. [ETFs for Rising Emerging Markets Dividends]
EGShares Brazil Infrastructure Index Fund