ETFs to Gain Exposure to Brazil's Stellar Growth

Three exchange-traded funds give investors exposure to Brazil's growing economy, stable financial market and liberal investment climate.
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NEW YORK (

TheStreet

) -- A steadily growing economy, stable financial market and liberal investment climate has enabled Brazil to prosper and build a foundation for continuous growth.

Brazil currently is the 10th largest economy in the world and due to its abundance of natural resources is likely to move up the list. Brazil is one of the few countries in the world that is self-sufficient in oil as well as a leader in alternative energy sources. Demand for crude oil likely will increase as the global economy continues to improve, and being self-sufficient in the commodity puts Brazil ahead of many of its competitors. To further support its strength in the oil markets, the nation just uncovered large new oil beds which are expected to increase output in the future.

On the alternative energy front, Brazil is a global leader in the production and utilization of ethanol. In fact, the Latin American nation produces more ethanol than Asia and Europe combined. Brazil's success in alternative energy is likely to further bolster its strength as other nations, like the United States, continue to place an emphasis on carbon reduction and the use of cleaner sources of energy.

Brazil is also rich in resources other than energy-related commodities. Brazil is the world's second largest producer of iron ore and is a leading exporter of steel, coffee, soybeans, sugar and beef -- natural resources that are likely to increase in demand as economies around the world grow.

Another factor working in Brazil's favor is its tight control over its monetary instruments. The country's fiscal policies and prudent decisions have left it with large cash reserves which have enabled the nation's credit markets to lend, when need be, and lead the nation's financial system to be somewhat shielded from the global financial catastrophe.

Lastly, Brazil is set to host the 2014 Olympics and the 2016 World Cup, two major sporting events which require massive infrastructure building and restructuring; these are likely to boost construction and building sectors of the nation. Additionally, once these two events take off, tourist spending and publicity are likely to further add to an already expanding gross domestic product.

In a nutshell, Brazil's abundance in natural resources and its fiscal discipline and stability have enabled it to be a positive candidate for stellar growth over the next few years.

Some ways to play Brazil include:

  • iShares MSCI Brazil Index (EWZ) - Get Report, which focuses on Brazil's largest companies with nearly 75% of its exposure to materials, energy and financial services. EWZ closed at $72.76 on Friday.
  • MarketVectors Brazil Small Cap (BRF) - Get Report, which invests in companies deriving at least half of their income by selling products to Brazilians. BRF closed at $46.42 on Friday.
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  • WisdomTree Dreyfus Brazilian Real (BZF) , which gives one exposure to Brazil's currency. BZF closed at $27.17 on Friday.

Although numerous forces point towards growth in Brazil, it is equally important to consider some risks that the nation may face such as widespread corruption, restrictive business labor laws and increasing government spending.

A good way to protect against these threats is through the implementation of an exit strategy which identifies price points at which an upward trend could come to an end.

According to the latest data at

SmartStops.net

, these price points are: EWZ at $69.14, BRF at $44.64, BZF at $25.94.

Written by Kevin Grewal in Laguna Niguel, Calif.

--At the time of publication, Grewal had no positions in the securities mentioned

.

Kevin Grewal serves as the editorial director and research analyst at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Additionally, he serves as the editorial director at SmartStops.net where he focuses on mitigating risks and implementing exit strategies to preserve equity. Prior to this, Grewal was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton.