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Brazil ETFs to Watch amid Domestic Woes & GDP Uptick

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Strikes and political uncertainty are putting Brazil in a tight spot even though its GDP grew 0.4%, edging past the estimate of 0.3%. Consumer spending rose by 0.5% — a result of the monetary easing policy of the Brazilian government — taking the interest rate to an all time low. In spite of these positive indicators the Brazilian economy is facing a crisis on account of rapid fuel price hike which led to massive protests from the truck drivers, leading to a halt in daily business activities.

Protesting Price Hike

The truckers of Brazil started a strike on May 21, protesting against high diesel prices. This has resulted in a supply crunch of essential commodities, gas stations running out of fuel, factories closing operations, supermarkets without products and protestors demanding a military rule. The president of Brazil has given some concessions with steps like no diesel tax for the next two months and minimizing toll tax for trucks. This has cooled the situation somewhat, with some protestors going back to work.

Politics in Brazil

Most Brazilians believe that their government has poorly handled the strike and are fed up with gun violence and corruption, which is rampant.

Jair Bolsonaro, a former army captain, and the far-right candidate, who is spearheading the movement against the corrupt Brazilian government, has supported the strike to protest against “extortionist” taxes levied by the government. Ahead of the Oct 7 election, an opinion poll suggests that 87% Brazilians supported the strike and a lot of them are looking for a change in government.

In the pre-election poll, Bolsonaro had the support of 20% of the citizens surveyed while the left candidate Inacio Lula da Silva has received 32% support although he will not be contesting the election on corruption charges. Mainly due to the pressure of Bolsonaro, the government had been persuaded to provide fuel subsidies that will eventually help in reducing inflation (read: 4 Best Performing Sector ETFs of May).

As political turmoil in Brazil continues, several ETFs have been affected. Let us focus on some ETFs that have performed poorly in the last one month.

Franklin FTSE Brazil ETF (FLBR - Free Report)

The fund tracks the performance of the FTSE Brazil RIC Capped Index. It consists of 80 holdings and has an asset base of $35.7 million in its basket. It has an average daily trade volume of 12903 shares. Financials, Materials and Energy are the top three sector allocations in this fund with 32.8%, 18.2% and 12.6%, weight, respectively. Individually Vale, ITAU Holdings and Banco SA are the top three stocks with 12.3%, 10.3% and 7.4%, respectively. The fund has lost 13.7% in the last one month. It has an expense ratio of 0.19%.  

iShares MSCI Brazil ETF (EWZ - Free Report)

The fund has exposure to the large and mid-sized companies in Brazil and tracks the performance of the MSCI Brazil 25/50 Index. With 54 holdings in its basket, the fund has an asset base of $7.3 billion. It has an annual fee of 62 basis points. CIA Vale, ITAU Holding and Banco SA are the top three individual holdings in this fund with exposure of 12.2%, 10.5% and 7.3% respectively. Average daily traded volume of shares stands at 18.8 million. As for sector allocations Financials, Materials and Consumer Staples comprise the top three with holdings of 33.6%, 20.4% and 11%, respectively. The fund was down by 12.2% in the last month and has Zacks ETF Rank #3 (Hold) (read: What Lies Ahead for Brazil ETFs?).

iShares MSCI Brazil Small-Cap ETF (EWZS - Free Report)

The fund has exposure to Brazilian small-cap stocks and seeks to track the performance of the MSCI Brazil Small Cap Index. It has AUM of $62.1 million and 66 holdings in its basket. The fund has an expense ratio of 0.62% and has an average daily volume of traded shares at 62,000. Consumer Discretionary, Utilities and Materials are the most prominent sector exposures with allocations of 34%, 18.2% and 12%, respectively. Bradespar SA, Estacio SA and CVC Brasil are the top individual stocks with none controlling more than 6%. In the last one month, the fund has lost 12.1% and has Zacks ETF Rank #4 (Sell).

First Trust Brazil AlphaDEX Fund (FBZ - Free Report)

The fund tracks the performance of the NASDAQ AlphaDEX Brazil Index. It has assets under management of $8.2 million and average daily traded volume of shares stands currently at 10,100. It comprises 50 holdings and has an annual expense of 80 basis points. Consumer Discretionary, Materials and Utilities are the top three sector allocations with holdings of 21.5%, 19% and 18.6%, respectively. As for individual outlook, Magazine S.A, Vale S.A and Fibria Cellulose S.A are the top stocks with none holding more than 5%. The fund has lost 11.5% in the last one month and carries Zacks ETF Rank #4.

VanEck Vectors Brazil Small-Cap ETF (BRF - Free Report)

The fund tracks the investment results of the MVIS Brazil Small-Cap Index. It has 63 holdings in its portfolio with an asset base of $86.3 million. Also, the average daily traded volume of shares stands at 32,400, and the expense ratio is 0.59%. CVC Brasil, Transmissora Electric and Cia Do Parana are the top individual holdings with none accounting for more than 6%. As for sector outlook, Consumer Discretionary, Utilities and Industrials comprise the top three allocations with 27.4%, 24.2% and 10%, respectively. The fund has lost 10.2% in the last four weeks and carries a Zacks ETF Rank #3 (read: Top and Flop ETFs at Half-Way Q2).

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