New ETF Tracks Brazilian Economy

NEW YORK (TheStreet) -- The ETF universe continues to expand and with over 1,000 different products currently trading, finding new, unique and attractive investment niches to fill has become a difficult task for providers.

As evidence, a number of ETF companies have resorted to launching funds which repackage indexes, while others have attempted to pull in new assets through the use of attractive pricing gimmicks.

However, some companies still have stuck to the traditional method of driving traffic: launching funds which fill gaps previously left untouched by other ETF providers. With products such as the Global X/InterBolsa FTSE Columbia 20 Index ETF ( GXG), Global X Silver Miners ETF ( SIL) and Global X China Financials ETF ( CHIX), Global X, has relied on its unique collection of products to grow its brand. Oftentimes, Global X funds are first movers within their respective market niches.

Since its products tap into previous unexplored market niches, Global X's suite of products includes a number of highly popular products as well as others that have struggled to gain traction. For instance, although it is just slightly over two months old, SIL has managed to take off with the growing interest in precious metals.

Today, the fund changes hands nearly 250,000 per day. Global X FTSE Nordic 30 ETF ( GXF), on the other hand, has been around for nearly a year but has not been nearly as popular, with an average volume failing to break the 10,000-share mark.

On Tuesday, the firm will attempt to attract new investor assets with the launch of the Global X Brazil Mid Cap ETF ( BRAZ). Although a number of products currently track aspects of this attractive emerging market, this fund provides investors with the very first opportunity to play Brazilian companies that have market caps ranging from $2 billion to $10 billion.

BRAZ will track the Solactive Brazil Mid Cap Index which consists of 40 individual holdings. Top positions include CPFL Energia, Companhia Energetica de Minas Gerais, All America Latina Logistica, and Metalurgica Gerdau.

Because it focuses on solely mid-cap companies, BRAZ will fill the gap left open between the large and mega cap-focused iShares MSCI Brazil Index Fund ( EWZ) and the small-cap Market Vectors Brazil Small Cap ETF ( BRF).

The new fund will carry a 0.69% expense ratio, causing it to fall between EWZ and BRF in terms of cost to investor.

In an interview with Bloomberg, a Global X spokeman said BRAZ's index will expose investors to "local, well-established, less-risky companies."

Looking at the fund's sector breakdown, BRAZ appears well suited to live up to this promise. With consumer staples firms representing 17% of the fund's portfolio BRAZ, like BRF, will be heavily influenced by the performance of the local Brazilian economy. At the same time, the fund's large utilities exposure adds some stability.

Although the firm's expectations of the fund appear optimistic, I would advise investors to avoid jumping right into BRAZ or any brand new ETF right off the start. As evidenced by its previous fund launches, Global X's ETF products can either take off quickly or stumble out of the gate. Therefore, the best approach to playing BRAZ is to watch the fund's performance for a few weeks to see if it can gain a following.

-- Written by Don Dion in Williamstown, Mass.

At the time of publication, Dion Money Management owns none of the equities 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.

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