Best Brazil ETFs for Q4 2022
EWZ, FLBR, and EWZS are the best Brazil ETFs for Q4 2022
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).1 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.23
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. But a strong labor market and rebounding services sector have accelerated growth, with economists now anticipating GDP growth of between 2% and 2.5% in 2022.45
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 outperformed 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 EWZS.The top holding of the first and second funds is Vale S.A., and the top holding of the third fund is Eneva S.A.
Three Brazil ETFs trade in the United States, excluding inverse and leveraged ETFs as well as those with under $50 million in assets under management (AUM). Brazilian equities, as measured by the MSCI Brazil Index, have outperformed the U.S. stock market over the past 12 months, with a total return of 0.1% compared with the S&P 500’s total return of -2.5%, as of Aug. 17, 2022.6 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 Aug. 18, 2022.7 In order to focus on the funds' investment strategy, the top holdings listed for each ETF exclude cash holdings and holdings purchased with securities lending proceeds except under unusual cases, such as when the cash portion is exceptionally large.
iShares MSCI Brazil ETF (EWZ)
Performance Over One Year: 2.9% Expense Ratio: 0.57%Annual Dividend Yield: 2.87%Three-Month Average Daily Volume: 24,600,244Assets Under Management: $5.6 billionInception Date: July 10, 2000Issuer: BlackRock Financial ManagementEWZ 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 financial, materials, and energy sectors of the Brazilian economy.8 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.9
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 ( PETR3:BSP). Together, these three stocks make up more than 30% of the EWZ portfolio.9
Franklin FTSE Brazil ETF (FLBR)
Performance Over One Year: 2.5%Expense Ratio: 0.19%Annual Dividend Yield: 3.45%Three-Month Average Daily Volume: 139,667Assets Under Management: $257.3 millionInception Date: Nov. 3, 2017Issuer: Franklin TempletonFLBR tracks the FTSE Brazil Capped Index, which gauges the performance of midcap and large-cap Brazilian equities.10 The ETF provides exposure to midsized and large-sized companies primarily based in Brazil. The financial, materials, and energy sectors receive the largest representation within the fund.11 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, all described above.12
iShares MSCI Brazil Small-Cap ETF (EWZS)
Performance Over One Year: -10.2%Expense Ratio: 0.57%Annual Dividend Yield: 2.28%Three-Month Average Daily Volume: 35,330Assets Under Management: $95.6 millionInception Date: Sept. 28, 201013Issuer: BlackRock Financial ManagementEWZS targets the MSCI Brazil Small Cap Index, comprised of small public Brazilian companies across a range of sectors. Small-cap companies may offer better exposure to developing economies as compared with large-caps that tend to localized in a few sectors like industry. Utilities, consumer discretionary, and industrials stocks make up the largest portions of the EWZS portfolio.13
The top holdings of EWZS include Eneva S.A. ( ENEV3:BSP), an electric power generation and distribution company; Sendas Distribuidora S.A. ( ASAI3:BSP), a supermarket chain; and Embraer S.A. ( EMBR3:BSP), an aerospace and aeronautical services company.14
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