Brazil has been attracting investor attention for several years. It is an emerging market economy, and as a BRIC (Brazil, Russia, India and China) country it has been producing stellar results for investors who are willing to take on some additional risks. However, emerging markets overall carry extra risk because their economies are growing but can be unstable. (See also: The Risks of Investing in Emerging Markets.)

One of the best ways to gain exposure to Brazil is through exchange-traded funds (ETFs​). Because these funds invest in a variety of stocks, you have more protection than you would if you bought a single stock.

Brazilian ETFs produced good returns throughout 2017, but have stumbled in 2018. Nonetheless, longer term, the ETFs could represent a good investment, provided investors choose judiciously. We have listed the top four based on total assets and track record beyond 2018. Data for the funds is accurate as of October 9, 2018.

1. VanEck Vectors Brazil Small-Cap ETF (BRF)

  • Avg. Volume: 42,913
  • Net Assets: $72.19 million
  • Dividend Yield: 6.26%
  • 2017 YTD Return: 54.56%
  • 2018 YTD Return: -27.42%
  • Expense Ratio: 0.60%
  • Inception Date: May 12, 2009
  • Price: $19.69

BRF focuses on small-cap stocks in Brazil. It uses the MVIS Brazil Small-Cap Index as its benchmark, investing a minimum of 80% of its assets in securities from that index. It may invest in micro-cap stocks. This means you must be willing to take on more risk. Of course, it also means you could have higher returns.

The year-to-date returns on this ETF have been problematic, but longer term results have been solid. The Fund and Index count any company as Brazilian that receives at least 50% of its revenues in Brazil or has 50% of its assets in Brazil. In 2017, the Fund reported a return of 54.56%. So far, in 2018, it's down over 27%.

2. iShares MSCI Brazil Small-Cap (EWZS)

  • Avg. Volume: 51,090
  • Net Assets: $49.32 million
  • Dividend Yield: 5.89%
  • 2017 YTD Return: 54.26%
  • 2018 YTD Return: -25.11%
  • Expense Ratio: 0.62%
  • Inception Date: September 28, 2010
  • Price: $13.92

EWZS invests in companies that are in the bottom 14% of the Brazilian market, based on capitalization. This ETF is for investors who like small-caps. EWZS uses the MSCI Brazil Small Cap Index as its benchmark. The Fund is not leveraged. While it invests at least 90% of assets in securities from the underlying Index, it also invests in securities outside the Index.

3. ProShares Ultra MSCI Brazil Capped (UBR)

  • Avg. Volume: 3,784
  • Net Assets: $8.37 million
  • Dividend Yield: N/A
  • 2017 YTD Return: 35.36%
  • 2018 YTD Return: -35.79%
  • Expense Ratio: 0.95%
  • Inception Date: April 27, 2010
  • Price: $65.98

UBR is a leveraged ETF. This fund seeks two times the return of the MSCI Brazil 25/50 Index. As a leveraged fund, UBR uses leveraged instruments which means it may borrow money to buy securities. This approach adds some additional risks for investors.

Holdings in the Fund primarily include iShares MSCI Brazil swap contracts. In 2017 this fund returned 35.36%, but has been hit hard in 2018, underscoring the risk of investing in leveraged funds. 

4. Direxion Daily Brazil Bull 3X ETF (BRZU)

  • Avg. Volume: 3,229,361
  • Net Assets: $319.38 million
  • Dividend Yield: 2.18%
  • 2017 YTD Return: 30.81%
  • 2018 YTD Return: -53.29%
  • Expense Ratio: 1.13%
  • Inception Date: April 10, 2013
  • Price: $29.62

BRZU is also a leveraged ETF. It takes a more aggressive leveraged position, seeking to generate three times the return of the MSCI Brazil 25/50 Index. The MSCI Brazil 25/50 Index focuses on large-cap and mid-cap stocks. BRZU invests in the iShares MSCI BRAZIL Capped ETF (EWZ). Its holdings also include swap contracts on the iShares MSCI Brazil Capped ETF as well as cash instruments. After a strong 2017, the ETF has been hit hard in 2018.

The Bottom Line

Brazil offers ample opportunity to achieve above average returns. As an emerging market BRIC country it is one of the category’s more advanced economies. In 2017 small-cap stocks in the country gained soundly – but 2018 has been a lot rougher. ProShares and Direxion also offer two options for bullish investors seeking to take a deeper leveraged position on the country’s top stocks overall.

These investments come with added risks, reflected in the 2018 losses. Thus, investors should monitor market developments and ensure the investments remain in line with their risk tolerance.