3 Brazil ETFs for Q1 2022

FLBR, EWZS, and EWZ are the three Brazil ETFs for Q1 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 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.

The COVID-19 pandemic sparked a 4.1% decline in GDP in 2020, but Brazil's economy has begun to stage a rebound in 2021 amid continuing major disruptions due to the pandemic. The International Monetary Fund forecasts that Brazil's GDP will expand 5.3% this year. 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 FLBR, EWZS, and EWZ.
  • The top holding of the first and third funds is Vale S.A., and the top holding of the second fund is Embraer S.A.

Just three Brazil ETFs trade in the United States, excluding inverse and leveraged ETFs as well as funds with less than $50 million in assets under management (AUM). 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 10.3% compared to the S&P 500’s total return of 41.2%, as of Oct. 29, 2021. The best-performing Brazil ETF, based on performance over the past year, is the Franklin FTSE Brazil ETF (FLBR).

We examine all three Brazil ETFs below. All numbers below are as of Oct. 28, 2021.

Franklin FTSE Brazil ETF (FLBR)

  • Performance Over One-Year: 14.4%
  • Expense Ratio: 0.19%
  • Annual Dividend Yield: 3.62%
  • Three-Month Average Daily Volume: 15,362
  • Assets Under Management: $190.4 million
  • Inception Date: Nov. 3, 2017
  • Issuer: Franklin Templeton

FLBR tracks the FTSE Brazil RIC Capped Index, which gauges the performance of mid- and large-cap Brazilian equities. The ETF provides exposure to mid- and large-sized companies primarily based in Brazil, with the materials, financials, and energy sectors receiving the largest representation within the fund. FLBR follows a blended strategy, investing in a mix of value and growth 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 S.A. (VALE3:BSP), a metals and mining company; preferred shares of Petroleo Brasileiro S.A. (PETR4:BSP), an integrated oil and gas company; and preferred shares of Itau Unibanco Holding S.A. (ITUB4:BSP), a financial services holding company.

iShares MSCI Brazil Small-Cap ETF (EWZS)

  • Performance Over One-Year: 14.0%
  • Expense Ratio: 0.59%
  • Annual Dividend Yield: 2.48%
  • Three-Month Average Daily Volume: 50,236
  • Assets Under Management: $89.3 million
  • Inception Date: Sept. 29, 2010
  • Issuer: BlackRock Financial Management

EWZS tracks the MSCI Brazil Small Cap Index, which gauges the performance of a group of small-cap Brazilian equities. The ETF provides exposure to small, publicly traded companies in Brazil, and its largest allocations are in the consumer discretionary, industrials, and utilities sectors of the Brazilian economy. EWZS follows a blended strategy, investing in a mix of both growth and value stocks. It is likely to be most appealing for investors looking to make a short-term tactical shift in their portfolios, but it also has some appeal to long-term, buy-and-hold investors.

The fund’s top three holdings are Embraer S.A. (EMBR3:BSP), an aerospace manufacturer; Petro Rio SA (PRIO3:BSP), an oil and gas company; and Sendas Distribuidora S.A. (ASAI3:BSP), a distributor of food products and other consumer goods.

iShares MSCI Brazil ETF (EWZ)

  • Performance Over One-Year: 13.3%
  • Expense Ratio: 0.59%
  • Annual Dividend Yield: 2.95%
  • Three-Month Average Daily Volume: 27,934,820
  • Assets Under Management: $4.8 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 mid- and large-cap companies based in Brazil. Its largest allocations are in the financial, materials, 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. Its top three holdings are Vale S.A.; preferred shares of preferred shares of Petroleo Brasileiro S.A.; and preferred shares of Itau Unibanco Holding S.A.

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.

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