Vivendi's Bid for GVT May Shake Up ETFs

Vivendi surprised the market late last week when the firm announced that it had outbid Spain's Telefonica (TEF - commentary - Trade Now) for Brazil's GVT. ETF investors holding the Market Vectors Brazil Small Cap ETF (BRF - commentary - Trade Now) will need to play close attention to how this deal pans out, as GVT is the fund's largest holding, making up nearly 6% of the fund. A shakeup in the fund's holdings may soon be in the cards.

Earlier this year, two of BRF's top holdings, Sadia and Perdigao, were removed from the fund's holdings when they joined to become Brasil Foods (PDA - commentary - Trade Now), a firm too large to meet the index's small-cap requirements. If GVT were to merge with Vivendi, the firm would probably be dropped from the index for the same reason.

On Monday, BRF rallied nearly 2.5% on the global rally, as shares of GVT were bid higher in the past couple of months. Vivendi's stock price, on the other hand, took a hit as investors feared that the firm's offer is too high

Vivendi's decision to outbid Telefonica is a good sign for General Electric (GE - commentary - Trade Now). The French conglomerate is currently one of the only hurdles standing in GE's way of dropping its unprofitable NBC Universal branch. Some analysts predict that Vivendi will have to sell its stake in NBC to pay for its GVT bid. This is also good news for Warren Buffett, whose GE shares are still far from returning a profit.

iShares Dow Jones U.S. Industrials (IYJ - commentary - Trade Now) holds 11.6% of assets in GE, while iShares Spain (EWP - commentary - Trade Now) has 20.4% of assets in Telefonica. iShares France (EWQ - commentary - Trade Now) has 3.1% of assets in Vivendi.

I prefer BRF over IYJ here. The effect from a GE deal will be diluted in IYJ, whereas BRF is in the midst of a general uptrend. Over the past three months, BRF gained 35.1% vs. IYJ's 13.1%.

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At the time of publication, Dion had no positions in securities mentioned.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.