Brazil’s economy is the world’s eighth largest, and the largest in South America. Brazil is also the world’s ninth-largest oil exporter. Brazil’s economy stalled during the financial crisis, as global demand for the country’s commodity-based exports, including oil, slowed. However, it was one of the first emerging markets to begin a recovery, posting positive growth in the second quarter of 2009. The Brazilian economy could grow as much as 5.5% in 2010. To top it off, the country’s exports to fast-growing China have risen sharply. In 2009, China passed the U.S. to become Brazil’s biggest export market, accounting for 12.5% of its total 2009 exports. The U.S. accounted for 10.5%, followed by Argentina (8.4%), the Netherlands (5.4%) and Germany (4.1%).
Unlock Brazilian gains with exchange-traded funds
Exchange-traded funds (ETFs) can be good choices for the part of your portfolio that you devote to investing in foreign countries, including Brazil.
That’s because directly investing in foreign markets can be complicated and risky, and high-quality ETFs let you make overseas investments with greater safety. Exchange traded funds mirror the performance of a stock-market index or sub-index. They hold a more-or-less fixed selection of securities that are chosen to represent the holdings that go into the calculation of the index or sub-index. [ofie_ad] Exchange-traded funds trade on stock exchanges, just like stocks. Investors can buy them on margin or sell them short. The best ETFs offer well-diversified, tax-efficient portfolios with exceptionally low management fees. They are also very liquid. In a just-published issue of Canadian Wealth Advisor, we update our buy/sell advice on four emerging market exchange-traded funds. One of these is the iShares MSCI Brazil Index Fund (symbol EWZ on New York).
A low-cost way to hold the biggest Brazilian companies
The iShares MSCI Brazil Index Fund is designed to track the Brazilian stock market, the Bovespa.
The exchange traded fund’s top holdings are Petrobras preferred shares (energy), 9.4%; Cia Vale do Rio Doce (mining) preferred shares, 9.3%; Itau Unibanco Multiplo SA (banking), 9.0%; Petrobras common shares, 7.9%; Cia Vale do Rio Doce common shares, 6.8%; Banco Bradesco preferred shares (banking), 5.2%; Itausa-Investimentos Itau (conglomerate), 3.4%; Cia de Bebidas das Americas preferred shares (beer and other beverages), 3.1%; BM&F Bovespa SA (Brazilian stock exchange), 2.7%; and OGX Petroleo e Gas Patricipa (energy), 2.6%. The ETF’s industry breakdown is as follows: Materials, 26.2%; Financials, 25.1%; Energy, 20.6%; Consumer Staples, 8.8%; Utilities, 5.6%; Consumer Discretionary, 5.3%; Industrials, 3.3%; Telecommunication Services, 2.8%; and Information Technology, 2.0%. The fund has an expense ratio of 0.65%.
High quality companies help offset resource risk
iShares MSCI Brazil Index Fund’s concentration in certain stocks, such as Petrobras and Cia Vale do Rio Doce, adds risk, as does its focus on the Resource sector. However, both stocks are among the highest-quality Brazilian companies available for investors, and both serve growing markets.
You can get our clear buy/sell/hold advice on iShares MSCI Brazil Index Fund and three other safety-conscious investments in the latest Canadian Wealth Advisor. What’s more, you get this issue free when you subscribe today. Click here to learn how.
