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Can Brazil ETF Catch Up to the BRICs?


In options trading, iShares MSCI Brazil (EWZ) flows continue to look optimistic, as calls were largely purchased again yesterday for the second straight session.

We have pointed to bullish looking flows in Brazil focused EWZ  via call option buying, and it is worth noting that Brazil as a country makes up 10.77% (the 3rd largest weighting) in the MSCI Emerging Markets Index, as tracked by iShares MSCI Emerging Markets (EEM).

Furthermore, this particular ETF, EEM, has seen impressive asset inflows for several weeks now — mostly at the expense of Vanguard Emerging Markets (VWO) — amid “index change” news that crept into the marketplace in early October.

Brazil is one of the so-called BRIC nations along with Russia, India and China.

Brazil has largely not participated in the equity upside of the 2012 markets, as EWZ is down 10.08% YTD versus EM’s larges weighting, China as measured by FXI (iShares FTSE China 25) up 3.24% during the same timeframe.

The S&P 500 Index is up 10.67% YTD in comparison. Currently, top holdings in EWZ are large cap names Petrobras (9.71%), Vale SA (7.92%), and Itau Unibanco (7.25%) and the fund itself is 25.13% allocated to mega caps with 17.60% weighted to large caps.

Thus, portfolio managers that are interested in long exposure to Brazil but want to own different segments of the Brazilian equity market may also consider other alternatives in this category.

BRF (Market Vectors Brazil Small Cap) is the second largest Brazil focused ETF in terms of AUM ($526 million currently behind EWZ’s mammoth $8.6 billion) and along with EWZS (iShares MSCI Brazil Small Cap), offer exposure to small cap names in Brazil.

EWZS has impressively out-performed BRF head to head in 2012 as well, rising 13.69% versus BRF +6.71%. Elsewhere, BRXX (EG Shares INDXX Brazil Infrastructure) offers exposure to names involved in infrastructure based sectors including Utilities, Industrials, and Basic Materials for instance. Other “long” ETF plays in the country’s equity market are BRAQ (Global X Brazil Consumer), BRAZ (Global X Brazil Mid Cap), FBZ (First Trust Brazil AlphaDEX), and BRAF (Global X Brazil Financials), and UBR (ProShares Ultra MSCI Brazil) offers leveraged daily exposure to the MSCI Brazil Index.

iShares MSCI Brazil

For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.