Stock markets around the globe are struggling to keep their head above water in 2011, as the European debt crisis looms. One country that in the past has been able to outperform its peers is Brazil. This year that has not been the case, as the country's stock index, the BOVESPA is down 20% through mid-week.
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

The sell-off in Brazil has created an opportunity for value investors willing to look outside the U.S. Based on an absolute price-to-book ratio Brazil has a reading of 1.47, below the U.S. (2.01) and less than a basket of GEM (global emerging market) countries. What is even more telling is that the Brazil reading is the same as it was at the 2008/09 low. The U.S., for example is, still well above the low mark of 1.46; a 38% premium. Based on the numbers, Brazil is a value today.(For related reading on the price to book ratio, see Using The Price-To-Book Ratio To Evaluate Companies.)

Brazil Asset Class ETFs
The largest Brazilian ETF is the iShares MSCI Brazil ETF (NYSE:EWZ), with over $9.1 billion in assets. The ETF is composed of 85 stocks with the majority in the financials, materials and energy sector. Fees are 0.61% annually and EWZ currently has a 30-day SEC yield of 3.7%. Year-to-date, the ETF is lagging the overall Brazilian market with a loss of 29%.

Global X Funds introduced the Brazil Mid Cap ETF (NYSE:BRAZ) in June 2010, and year-to-date the ETF is down 26%. The ETF is composed of 43 stocks and has $20.3 million in assets. There is currently no dividend distributions and the ETF charges an expense ratio of 0.69%. The ETF is heavily invested in utilities, financials and industrials.

Investors who want to go small, have the Market Vectors Brazil Small Cap ETF (NYSE:BRF). The little guys have been hit the hardest this year, falling 31% in 2011. The ETF is made up of 62 stocks with the largest concentration in consumer discretionary, industrials and financials. The expense ratio is 0.59% and there are no dividend payments, as of yet.

Sector ETFs
Global X and EG Shares offers three niche ETFs that focus on specific sectors within the Brazilian stock market. The largest of the three is the EG Shares Brazil Infrastructure ETF (NYSE:BRXX). The ETF is holding up better than its peers, with a loss of about 18.5% year-to-date. A total of 30 stocks compose the ETF that charges a 0.85% expense ratio, with a dividend yield on the index of 4.7%. This is a play on the building that is planned, in anticipation of the World Cup and Olympics, both coming to the country in the next five years.

The Global X Brazil Consumer ETF (NYSE:BRAQ) and Global X Brazil Financials ETF (NYSE:BRAF) have struggled to attract assets with $26.5 and $5.2 million, respectively. They have also lagged BRXX with returns of -25% for BRAF and -28% for BRAQ.

The Bottom Line
The smaller the companies that make up the ETFs, the more likely they will rely on the Brazilian economy, versus the global economy. This, in turn, makes the ETFs that are composed of small and mid cap stocks a more direct play on the rise of Brazil. In my opinion, the country of Brazil will offer a better opportunity in the coming year than the global economy and, therefore, would concentrate on BRAZ and BRF as investment choices. (For related reading on mid cap stocks, see How To Analyze Mid-Cap Stocks.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.
Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: iShares Asia 50

    Read more about BlackRock's iShares Asia 50 Fund, an ETF that follows the four "Asian Tiger'' nations plus China.
  2. Investing

    Build a Retirement Portfolio for a Different World

    When it comes to retirement rules of thumb, the financial industry is experiencing new guidelines and the new rules for navigating retirement.
  3. Mutual Funds & ETFs

    ETF Analysis: WisdomTree International LargeCp Div

    Learn more about the WisdomTree International LargeCap Dividend fund, an income-based international equities ETF that focuses heavily on the United Kingdom.
  4. Economics

    Understanding Free Trade

    Free trade exists when nations can swap goods and services without the constraints of tariffs, duties or quotas.
  5. Mutual Funds & ETFs

    ETF Analysis: United States Gasoline Fund

    Learn about the United States Gasoline Fund, the characteristics of the exchange-traded fund, and the suitability and recommendations of it.
  6. Mutual Funds & ETFs

    ETF Analysis: United States 12 Month Oil

    Find out more information about the United States 12 Month Oil ETF, and explore detailed analysis of the characteristics, suitability and recommendations of it.
  7. Mutual Funds & ETFs

    ETF Analysis: ProShares Ultra Nasdaq Biotechnology

    Find out information about the ProShares Ultra Nasdaq Biotechnology exchange-traded fund, and learn detailed analysis of its characteristics and suitability.
  8. Mutual Funds & ETFs

    ETF Analysis: Direxion Daily S&P Biotech Bull 3X

    Learn more about the Direxion Daily S&P Biotech Bull 3x exchange-traded fund, a new triple-leveraged ETF tracking biotechnology equities.
  9. Mutual Funds & ETFs

    ETF Analysis: First Trust Health Care AlphaDEX

    Learn more about the First Trust Health Care AlphaDEX exchange-traded fund, an indexed fund that uses an advanced stock selection methodology.
  10. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI Emerging Mkts

    Learn more about the PowerShares FTSE RAFI Emerging Markets ETF, a fundamentally weighted fund that tracks emerging market equities.
RELATED TERMS
  1. Trade Credit

    An agreement where a customer can purchase goods on account (without ...
  2. Equity

    The value of an asset less the value of all liabilities on that ...
  3. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  4. Brazil, Russia, India And China ...

    An acronym for the economies of Brazil, Russia, India and China ...
  5. Optimal Currency Area

    The geographic area in which a single currency would create the ...
  6. European Sovereign Debt Crisis

    A period of time in which several European countries faced the ...
RELATED FAQS
  1. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  6. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!