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ETF Offers a Taste of Investing in Brazil

Jonas Elmerraji

Grabbing a BRIC

Right now, Brazil is one of the four top emerging-market economies on every analyst's growth radar. Companies in Brazil as well as in Russia, India and China (or BRIC) are expected to grow at a phenomenal rate for the next several decades (see "'BRIC ETF Investing: An Introduction").

If you're interested in investing in Brazil (or almost any emerging market), an ETF can provide you market exposure with the same security and ease of access as buying and selling a domestic stock. For example, Barclays' (BCS Quote - Cramer on BCS - Stock Picks) country-specific iShares MSCI Brazil Index Fund (EWZ Quote - Cramer on EWZ - Stock Picks) can take a whole lot of red tape out of investing in Brazil's heavily regulated market.

How does EWZ work? The ETF mirrors the MSCI Brazil Index , an index that was designed to measure Brazil's domestic market equity performance. What that means is that EWZ essentially tracks the performance of the hundreds of Brazilian companies that trade on the São Paulo Stock Exchange. EWZ has returned around 45% since January, a statistic that's pretty telling of the growth Brazil has been experiencing of late.

The ETF is heavily weighted in Brazil's key economic areas -- materials (29.6%, including Companhia Vale do Rio Doce (RIO Quote - Cramer on RIO - Stock Picks)) and energy (22.6%, including Petrobas (PBR Quote - Cramer on PBR - Stock Picks)) -- as well as quickly emerging service areas, such as financials (16%, including Banco Bradesco (BBD Quote - Cramer on BBD - Stock Picks)).

Brazil and Beyond

If you're interested in getting some exposure to Brazil without investing in an ETF that's completely Brazil-centric, alternative investments exist as well. There are Latin American ETFs that have holdings throughout Latin America (including Brazil).

For example, the S&P Latin America Index has inspired two ETFs: State Street's SPDR S&P Emerging Latin America (GML Quote - Cramer on GML - Stock Picks) and Barclays' iShares S&P Latin America 40 Index (ILF Quote - Cramer on ILF - Stock Picks). And with BRIC ETFs, such as the Claymore/BNY BRIC (EEB Quote - Cramer on EEB - Stock Picks) and State Street's SPDR S&P BRIC 40 (BIK Quote - Cramer on BIK - Stock Picks), the possibilities to diversify your exposure to Brazil with the other BRIC countries are greater than ever before. (To learn more about ETF investing, visit TheStreet.com's ETF Center.)

Alternatively, there are also a number of closed-end mutual funds that feature Brazil. Among these are Morgan Stanley's Latin America Discovery Fund (LDF Quote - Cramer on LDF - Stock Picks) and Credit Suisse's Latin America Equity Fund (LAQ Quote - Cramer on LAQ - Stock Picks).

So, Why Brazil?

While the BRIC country closest to the U.S. may be known best for its beaches and rainforests, one of Brazil's most attractive draws may be its economy. Brazil has the most powerful economy in Latin America. The country manufactures everything from sophisticated turbine aircraft to orange juice, and it has a well-established professional services sector.

Financial services especially have been getting a boost recently at the demands of Brazilian enterprise. Companies such as Banco Itau (ITU Quote - Cramer on ITU - Stock Picks) have been seeing these demands translate into real growth; the private Brazilian bank's NYSE - listed ADR has jumped over 40% since March.

A notable amount of this growth in Brazil's financial sector can be attributed to Brazilian consumers. These days, Brazilians often buy on credit and are able to enjoy a lifestyle once relegated to those in the "industrialized" countries.

However, if you're not be ready to pick up an English-Portuguese dictionary and send your portfolio on a trip to São Paulo, that's perfectly fine because there are other factors worth considering when it comes to investing in the Brazilian economy.

Understand the Region

Brazil's new economic boom doesn't come risk-free. In 2001, investors were shown the ugly side of Latin American economies when Argentina's market collapsed, sending reverberations throughout the region. And while Brazil's economy is certainly showing none of the signs Argentina's did six years ago, it's worth noting that even the fastest rising emerging markets can stumble on their way up.

While Brazil may not be growing as quickly as some of the other BRIC countries (Brazil's economic growth rate is less than that of India and China), it does have a marked advantage: Infrastructure. Of the four BRIC countries, Brazil arguably has the most developed economy. This also means that Brazil is able to be more autonomous in the way it operates, from an economic standpoint.

There are also some barriers to trade in Brazil, namely high taxes and complex regulatory compliance laws. But while these are problems faced by those interested in direct investment in Brazil, if you're an investor interested in a Brazilian ETF, taxes and regulations are more indirect concerns.

Ultimately, many feel that Brazil's prospects outweigh its risks. The fact that Brazilian companies are thriving says enough to scores of investors on its own (Brazilian energy conglomerate Petrobas is up almost 40% this year alone).