NEW YORK (
) -- Last week in my "Beyond Brazil" series I wrote about how investors can use ETFs to gain exposure to Latin American countries other than Brazil. Now I will show how investors can gain exposure to Brazil and detail some of the dynamics that will affect the ETFs that focus on the country.
Brazil gained investor attention in the past decade as the "B" in the fast growing bloc of "BRIC" nations, a group that was originally coined by Goldman Sachs. The country faced setbacks during the credit crisis and GDP only increased by 0.2% in 2009. Brazil has emerged from the crisis strengthened, with an expected growth rate of 5.8% in 2010, according to the country's central bank, and 6.4%, according to Goldman.
The country's economy, which has a workforce of almost 100 million people, features well-developed agricultural, mining, and technology sectors, and its exports are dominated by commodities. This leaves Brazil vulnerable to world commodity price fluctuations and changes in demand from its large export partners: the U.S., China, and Argentina.
However, Brazil's economy is far more inward-oriented than it is export-oriented. Exports in 2009 accounted for roughly 11% of GDP compared to about 7.0% in the United States, 25% in China, and 44% in South Korea. While the Brazilian economy is not as oriented around domestic consumption as our economy in the U.S., it is also not as reliant on exports as other emerging market countries such as China or South Korea.
For the purest play on the chunk of the Brazilian economy that is not heavily attached to exports and the economic well-being of other countries, ETF investors can choose
MarketVectors Brazil Small-Cap ETF
iShares MSCI Brazil Index Fund
This is something that I have advocated in the past as a way for investors to avoid industries such as materials and energy, which are contingent on global prices for their well-being. EWZ has a 52.4% allocation to the energy and materials sector while materials accounts for only 11.9% of BRF.
Investors also now have the
Emerging Global Advisors Brazil Infrastructure ETF
as an option for a way to invest in the growth of Brazil's economy. Launched this week, this ETF tracks an index of companies that are involved in building Brazil's infrastructure industry or have a stake in supplying materials to the sector.