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Brazil Economy on a Roll: ETFs to Cash In On

The Brazilian economy was off to a great start this year. First, the economy returned to growth in the first quarter of 2017, after two-years of recession. Then it grew 0.2% sequentially in the second quarter of 2017, following 1% advancement in the previous period and beating market expectations of 0.1% expansion (read: Are Q1 ETF Toppers Healthy Enough for Further Run in Q2?).

Year over year, the economy grew 0.3%, after a 0.4% shrinkage in the previous period and representing the first annual growth rate since the first quarter of 2014. Household spending rose for the first time in Q2, in two and a half years, while government spending fell and investments continued to slide.

Private consumption grew 0.7% year over year compared with a negative 1.3% year-over-year reading in the first quarter of 2017. Consumer credit and confidence levels are also trending up, going by an article published on barrons.com.

As quoted on Reuters, the Brazilian government may up its forecast for 2017 economic growth to around 1% from 0.5%, as per Finance Minister Henrique Meirelles, after several indicators exceeded expectations.

Bank of America Merrill Lynch economists are bullish on Brazil’s economic growth prospects, and expect the growth pace to double in 2018 and GDP growth to touch 3% next year. They believe that “companies and sectors most linked to the domestic economy, such as consumer discretionary and capital goods, could see earnings per share estimates moving higher as better economic growth is priced in.”

Against this backdrop, it is wise to bet on small-and-mid cap stocks with a deeper domestic focus. Also, consumer-oriented stocks and ETFs are good bets now. We thus highlight a few ETFs below that can fetch investors some quick gains (see all Latin American Equity ETFs here).

Global-X Brazil Consumer ETF BRAQ

The 33-stock fund targets the consumer discretionary and consumer staples sectors in Brazil. VIA VAREJO SA, LOCALIZA RENT A CAR and ESTACIO PARTICIPACOES SA hold the top three positions of the fund. The fund charges 77 bps in fees. Food Beverage & Tobacco (24.17%) is the top industry of the fund while Food & Staples Retailing (16.69%) and Transportation (13.63%) make up for the next two spots.

iShares MSCI Brazil Small-Cap ETF EWZS

This ETF provides targeted exposure to the Brazilian small-cap stocks by tracking MSCI Brazil Small Cap Index. The 63-stock fund charges investors 63 bps in fees per year. Consumer discretionary takes the top spot at 38.9%, followed by double-digit exposure each in utilities, materials and industrials (read: Emerging Markets Leading This Year: 5 Top-Performing ETFs).

Brazil Smallcap ETF Vaneck BRF

The 61-stock fund looks to track the securities of small capitalization companies “that are incorporated in Brazil or that are incorporated outside of Brazil but have at least 50% of their revenues/related assets in Brazil”, as per the issuer. Bradespar Sa, Alupar Investimento Sa and Cvc Brasil Operadora E Agencia De Viage are the top three companies of the fund and account for about 12%. The net expense ratio of the fund is 0.60%.

Global-X Brazil Midcap ETF BRAZ

The 41-stock fund provides investors access to a broad range of mid-cap stocks in Brazil. It is heavy on BM&FBOVESPA SA, which accounts for about 10%. ULTRAPAR PARTICPAC-SPON A (6.96%) and Kroton Educacional SA (6.10%) are the top two stocks of the fund. The fund charges 69 bps in fees.

Wisdomtree Brazilian Real Fund BZF

In an improving economy, its currency also gains traction. This makes it necessary to have a look at BZF. The fund looks to attain total returns reflective of both money market rates in Brazil available to foreign investors and changes in value of the Brazilian Real relative to the U.S. dollar. The fund charges 45 bps in fees. The fund gained 1.8% in the last 10 days against a 0.3% decline in Powershares DB US Dollar Index Bullish Fund UUP (read: Currency ETF Winners & Losers Post Trump Win).

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