Brazil exchange-traded funds (ETFs) provide exposure to the largest economy in Latin America and one of the 12 largest economies in the world by gross domestic product (GDP). Brazil is an emerging market economy striving to become a modern industrial nation with a high standard of living.
The country is rich in natural resources, with more than 40% of the world’s tropical forests and about 20% of its supply of fresh water. But it also faces major challenges, including massive economic inequality, government corruption, and most recently, the ravages of the COVID-19 pandemic.
Brazil’s economy is still far from a full recovery even after shrugging off the worst of the pandemic and rebounding strongly in 2021. Inflation and political turmoil ahead of the October 2022 presidential vote have hampered growth. Brazil’s GDP is expected to expand by only 0.5% in 2022 and 1.5% in 2023.
For investors able to handle the risks of an emerging market economy, there are significant potential gains to be made. A Brazil ETF provides investors a way to benefit from potential future growth in the Brazilian economy while limiting some of the risks by diversifying across a basket of stocks operating in different economic sectors.
Key Takeaways
- Brazilian equities underperformed the U.S. stock market over the past year.
- The Brazil exchange-traded funds (ETFs) with the best one-year trailing total returns are EWZ, FLBR, and FBZ.
- The top holding of the first and second funds is Vale S.A., and the top holding of the third fund is preferred registered B shares of Companhia Paranaense de Energia – COPEL.
Just five Brazil ETFs trade in the United States, excluding inverse and leveraged ETFs. Brazilian equities, as measured by the MSCI Brazil Index, have underperformed the U.S. stock market over the past 12 months, with a total return of -0.5% compared to the S&P 500’s total return of 3.9%, as of April 28, 2022. The best-performing Brazil ETF, based on performance over the past year, is the iShares MSCI Brazil ETF (EWZ). We examine the top three Brazil ETFs below. All numbers below are as of April 28, 2022.
ETFs with very low assets under management (AUM), less than $50 million, usually have lower liquidity than larger ETFs. This can result in higher trading costs which can negate some of your investment gains or increase your losses.
- Performance Over One-Year: -0.3%
- Expense Ratio: 0.57%
- Annual Dividend Yield: 2.87%
- Three-Month Average Daily Volume: 27,957,598
- Assets Under Management: $5.8 billion
- Inception Date: July 10, 2000
- Issuer: BlackRock Financial Management
EWZ tracks the MSCI Brazil 25/50 Index, which provides a broad-based measure of the performance of the Brazilian equity market. The ETF provides exposure to midcap and large-cap companies based in Brazil. Its largest allocations are in the materials, financial, and energy sectors of the Brazilian economy. EWZ follows a blended strategy, investing in both growth and value stocks, and is one of the best options for providing broad exposure to the large-cap segment of Brazil’s equity market.
The top three holdings of EWZ are Vale S.A. (VALE3:BSP), a metals and mining company; preferred shares of Petróleo Brasileiro S.A. (PETR4:BSP), an integrated oil and gas company; and ordinary shares of Petróleo Brasileiro S.A. (PETR3:BSP).
- Performance Over One-Year: -1.1%
- Expense Ratio: 0.19%
- Annual Dividend Yield: 3.45%
- Three-Month Average Daily Volume: 236,265
- Assets Under Management: $390.9 million
- Inception Date: Nov. 3, 2017
- Issuer: Franklin Templeton
FLBR tracks the FTSE Brazil Capped Index, which gauges the performance of midcap and large-cap Brazilian equities. The ETF provides exposure to midsized and large-sized companies primarily based in Brazil. The materials, financial, and energy sectors receive the largest representation within the fund. FLBR follows a blended strategy, investing in a mix of growth and value stocks, and is a relatively cheap option for investors looking for broad-based exposure to the Brazilian equity market. The fund’s top three holdings are Vale, preferred shares of Petróleo Brasileiro, and ordinary shares of Petróleo Brasileiro.
- Performance Over One-Year: -2.4%
- Expense Ratio: 0.80%
- Annual Dividend Yield: 4.07%
- Three-Month Average Daily Volume: 18,390
- Assets Under Management: $11.4 million
- Inception Date: April 18, 2011
- Issuer: First Trust
FBZ targets the Nasdaq AlphaDEX Brazil Index, comprised of stocks from the NASDAQ Brazil Index selected for growth factors including price appreciation, sales to price and one year sales growth, and value factors such as book value to price. Utilities, materials, and consumer staples stocks make up the largest part of the portfolio. FBZ is a multi-cap fund that adopts a blended strategy.
The top holdings of FBZ include preferred registered B shares of Companhia Paranaense de Energia – COPEL (CPLE6:BSP), an electric utility company; preferred shares of Compania de Transmissao de Energia Eletrica Paulista (TRPL4:BSP), a transmission system operator of the Brazilian electrical power grid; and preferred shares of Petroleo Brasileiro.
The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.
