There's Just One Good Brazil ETF And Investors Are Ignoring It

It is just another day at the office for the iShares MSCI Brazil Capped ETF EWZ. The largest exchange traded fund tracking Brazilian equities was off 2.3 percent closed below $26 for the first time in more than 10 years.

Wednesday's woes extend EWZ's well-documented woes to a 90-day loss of over 27 percent. Speaking of Wednesday woes, three Brazil ETFs, including EWZ hit 52-week lows. In the case of the other two that are not EWZ, those funds actually hit all-time lows.

There is one Brazil ETF that has actually been thriving even as stocks in Latin America's largest economy flounder. Not surprisingly, it is the lone inverse Brazil ETF on the market, the ProShares UltraShort MSCI Brazil ETF BZQ.

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BZQ

On another bad day for U.S. stocks, just nine ETFs hit 52-week highs. Four are inverse emerging markets funds and BZQ is part of that group. BZQ's objective is to deliver double the daily inverse returns of the MSCI Brazil 25/50 Index, EWZ's underlying benchmark. Said another way, in a perfect world, if EWZ falls 2 percent on a particular day, BZQ should rise by 4 percent.

BZQ is actually doing much better than that. While leveraged ETFs are not intended for holding periods of longer than a few days, perhaps a few weeks in some case depending on the trader's risk tolerance, it is hard to ignore BZQ's 90-day performance. Remember, over that period EWZ is down around 27 percent, so in theory BZQ should be up 54 percent. Actually, the lone bearish Brazil fund has surged 72 percent over that span.

That overperformance of its benchmark might confound traders, but what is really vexing about BZQ is how little attention the fund has been getting. After all, there are no shortage of articles highlighting the bear scenario for Brazilian stocks. Short Brazil has been one of the easiest trades on the market for some time.

Knowing that, it is not surprising that EWZ has bled $784 million in assets this year. The surprise is traders have pulled almost $9.2 million from BZQ. BZQ had $27.5 million in assets under management at the end of the second quarter, according to ProShares data.

As if BZQ's year-to-date outflows are not confounding enough, consider what has gone on with the fund in the current quarter. With its losses today, EWZ is down nearly 21 percent since the start of the third quarter, helping BZQ to a gain of 50.5 percent. However, traders have mostly botched this opportunity. EWZ has third-quarter inflows of $12.5 million while nearly $15.1 million has been yanked from BZQ.