This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

How to Make Money in Brazil

If for no reason other than the scantily-clad revelers adorning the floats in its Carnival parades, Brazil is certain to gain some investor attention now that its annual pre-Lenten festivities are at hand.

But aside from the images permeating TV and computer screens this time of year, how about the investment climate in Brazil?

For someone not already invested in Brazil, there doesn't currently seem to be any compelling need to immediately get into the market

Worldwide, current markets generally present above-average risks to any stock investor, and extreme caution is needed to navigate through these uncharted waters. The depth and duration of any impending U.S. or worldwide economic downturn is still largely unknown. Hence, a prudent investor is most likely to remain on the sidelines at least until the end of the first quarter of 2008 and let the market go through its gyrations.

There is not yet an overwhelming mass of evidence that a significant economic and market correction has already occurred in Brazil.

The Brazilian market's Bovespa index, like most of the world's stock market gauges, fell victim to selling in January. It skidded to a closing low of 53709.11 on Jan. 21 from its all-time high of 65790.81 set on Dec. 6 of last year. But within a week, it had recovered to near the 59000 level. The brief setback could hardly be described as a bear market, especially in emerging-market terms.

Even at the trough of its January downward spike, the Bovespa held at levels no lower than four months earlier.

So when considering that nation's current economy, the logical conclusion is that failure to invest in Brazil at current levels doesn't necessarily mean missing a great buying opportunity. There will very likely be plenty of time for investors to find bargains in mid- to late 2008 and beyond.

Brazil's economy has undergone some much-needed changes that could set the stage for more sustained growth and less volatility than in the past. Changes such as paying down its debt levels and keeping a lid on spending are exactly what emerging markets should be doing in times of prosperity. If the global expansion slows, it will affect Brazil's economy in no uncertain terms, as commodity demand accounts for 50% of all of the nation's exports.

However, with a cleaner national balance sheet and policies that have attracted foreign investment, Brazil is in the best position it has ever been in to tackle the challenges of a global downturn.

Brazil's economic growth in 2007, as can be seen in the accompanying table, came in at 5.3%, more than double its most recent 10-year average of 2.5%. This has resulted in an uptick in inflation and has strained infrastructure resources such as roads, ports and electricity. So a global slowdown may be just the tonic to get Brazil's growth rate back to more sustainable levels.

Additional investment in infrastructure is needed for Brazil's future economic expansion and international competitiveness. The prospect of a healthier national balance sheet will attract additional foreign investment to funds, likely boosting the nation's securities markets.

A glance at the high-double-digit returns in the accompanying table of funds with portfolio exposure of 20% or more in Brazil is likely to give pause to anyone tempted to jump in at current levels. The returns through the end of December seem to be discounting a lot of growth without providing much latitude for economic disappointment.

BRAZIL: WELL POSITIONED FOR FOR ECONOMIC GROWTH
Latin American Economy Annual GDP Growth (%) Consumer Inflation Rate (%) Current Acct as % of GDP Jobless Rate (%) 10-Year Interest Rate (%)
Brazil 5.70% 4.50% 1.80% 7.40% 11.96%
Argentina 8.70% 8.50% 1.90% 8.10% 13.06%
Chile 4.10% 7.80% 0.60% 7.30% 3.07%
Colombia 6.70% 5.70% -1.60% 9.00% 8.97%
Mexico 3.70% 3.80% -0.60% 3.40% 7.80%
Peru 8.10% 3.90% 1.30% 7.50% 2.11%
Uruguay 9.60% 8.50% -0.50% 8.20% N/A
Venezuela 8.70% 22.50% 19.10% 6.20% 11.25%

Commitments to funds with significant exposure to Brazil are more likely to turn profitable if made during periods of market weakness.

The table was created by searching TheStreet.com Ratings fund database for open-end mutual funds, exchange-traded funds and closed-end funds with at least 20% of portfolio value in Brazilian-domiciled investments.

FUNDS WITH AT LEAST 20% OF HOLDINGS IN BRAZILIAN-DOMICILED INVESTMENTS
NAME, TICKER & TheStreet.com RATINGS GRADE NO. OF BRAZILIAN HOLDINGS PCT. OF HOLDINGS IN BRAZIL VAL. OF BRAZILIAN HOLDINGS ($MIL) 12-MO. TOTAL RET'N (%) 3-YR. ANN'L RET'N (%)
OPEN-END MUTUAL FUNDS
CGM Mutual Fund (LOMMX) A 4 23.1 142.4 38.49 18.75
DFA Emerging Markts Core Eqty Port (DFCEX) U 75 26.6 372.9 37.49 N/A
DWS Latin America Eq Fund A (SLANX) B- 28 70.4 650.5 44.65 46.14
Fidelity Adv Latin America A (FLTAX) B 52 61.5 144.5 41.75 46.67
Fidelity Latin American Fund (FLATX) B 51 58.6 3,631.0 43.71 47.64
Goldman Sachs BRIC A (GBRAX) U 9 33.6 70.4 53.5 N/A
JPMorgan Latin America A (JLTAX) U 33 55.8 975.1 N/A N/A
Natixis CGM Advisor Trgt Eqty A (NEFGX) A+ 3 22.3 204.4 34.42 18.19
Oppenheimer Developing Mkts A (ODMAX) B 22 24.2 2,713.0 33.86 33.26
Phoenix Insight Emerging Mkt A (HEMZX) D+ 18 27.7 62.6 37.16 32.45
RVS Emerging Markets Fund A (IDEAX) C+ 15 20.6 146.9 37.23 35.19
T. Rowe Price Latin America (PRLAX) B 26 64.9 2,276.6 48.93 53.33
Templeton BRIC Fund A (TABRX) U 15 33.0 549.2 50.28 N/A
EXCHANGE-TRADED FUNDS
iShares MSCI Brazil Index Fund (EWZ) B 69 99.5 6,671.9 77.15 57.05
iShares S&P Latin American 40 Index Fund (ILF) A- 18 66.9 2,052.3 50.92 48.72
Market Vectors Steel Index ETF Fund (SLX) B 3 20.5 49.3 86.88 N/A
SPDR S&P Emerging Latin America ETF (GML) U 44 66.2 26.0 N/A N/A
CLOSED-END FUND
The Latin America Discovery Fund (LDF) C+ 25 67.9 186.4 45.47 55.14
Source: TheStreet.com Ratings - Data as of 12/31/2007.

Most recently available portfolio data indicates that 806 U.S. open-end funds hold positions in 187 Brazilian investments worth an aggregate $76.9 billion. Twenty-three ETFs hold a combined $15.7 billion in 74 Brazilian companies, and 44 closed-end funds have positions in 50 Brazilian firms with a cumulative value of $831 million.

A nearby table lists the 10 favorite investments of U.S. funds, sorted by combined value of holdings of open-end, closed-end and exchange-traded funds.

FAVORITE BRAZILIAN-DOMICILED STOCKS OF U.S. FUNDS
NAME NO. OF OPEN-END FUNDS NO. OF ETFs NO. OF CLOSED-END FUNDS VAL. OF FUND HOLDINGS ($BIL.)
Petroleo Brasileiro Sa Petrobr 379 18 16 29,913.7
Companhia Vale do Rio Doce 373 20 11 17,187.9
Banco Bradesco SA 101 9 9 5,639.1
Bco Itau Holding Financeira Sa 120 3 3 4,958.7
Unibanco-Uniao De Bancos Brasi 158 6 5 3,523.5
Embraer Empsa Bras De Aeronaut 116 9 3 2,152.9
Companhia De Bebidas Das Ameri 85 10 2 1,721.2
Gerdau SA 69 14 6 1,172.8
Aracruz Celulose S A 55 8 0 1,108.2
Usinas Siderurgicas Minas Gera 83 7 3 998.1
Source: TheStreet.com Ratings - Data as of 12/31/2007.

The standard time-test principles of investing should be worth careful consideration when looking at Brazilian investments at current levels, namely: Capital preservation should overrule all else. Capital preserved in safe money market funds and the like are tantamount to bullets in a gun -- cash, the bullets, allows you to go hunting when the time is right.

Investment in emerging markets such as Latin America is an opportunity to keep in mind. An emerging-market component to any well-diversified and conservative portfolio of funds can prove a "kicker" for returns. The risks are higher. However, if the core of a fund portfolio consists of large-cap multinational funds as well as international holdings in mature economies, then an emerging market such as Brazil balances out the portfolio nicely.

Richard Widows is a financial analyst for TheStreet.com Ratings. Prior to joining TheStreet.com, Widows was senior product manager for quantitative analytics at Thomson Financial. After receiving an M.B.A. from Santa Clara University in California, his career included development of investment information systems at data firms, including the Lipper division of Reuters. His international experience includes assignments in the U.K. and East Asia.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,279.74 +13.75 0.08%
S&P 500 2,010.40 -0.96 -0.05%
NASDAQ 4,579.7890 -13.6380 -0.30%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs