Under The Hood: A Forgotten Brazilian Play

An adoring fan wrote in recently and said the Professor needs to highlight more mid-cap ETFs and in an ongoing effort to be more fan friendly, the Professor has obliged. What better place to start than with a fund that tracks a once hot, but now cool emerging market? That fund is the often forgotten Global X Brazil Mid Cap ETF BRAZ. Now about 15 months old, BRAZ has done a pretty fair job of attracting assets. With an expense ratio of 0.69%, BRAZ has $24.4 million in AUM. While BRAZ is the ETF that represents the market cap spectrum that is right in the middle of what the Market Vectors Brazil Small-Cap ETF BRF and the iShares MSCI Brazil Index Fund EWZ cover, the mid-cap offering is still dwarfed in size by those two rivals. BRF has almost $813 million in AUM while EWZ has almost $11 billion in AUM. Obviously, BRAZ mercifully spares investors exposure to Petrobras PBR, one of the primary reasons EWZ has been a major disappointment this year. On the other hand, no Brazil-specific ETF has been spared a tumble at the hands of one of the worst inflation scenarios in the emerging markets. Home to 43 stocks, BRAZ actually has some high points for investors looking to nibble at Brazil right now. Conservative investors will like the fact that utilities account for a quarter of the ETF's sector weight. Diversity seekers will enjoy the fact that four other sectors (financials, industrials, consumer discretionary and staples) also receive double-digit allocations. A surprisingly low allocation to materials (5.3%) and nothing involving oil names are high points for BRAZ in the current market environment as well. Of course, the most important question regarding BRAZ, and its rivals for that matter, is whether Brazilian equities have seen the worst of their declines or is there more downside to come? Well, no one knows for sure, but the long Europe's sovereign debt woes pressure emerging markets, the longer ETFs like BRAZ will suffer. There is a bright side. Flying under the radar, BRAZ has sharply outperformed EWZ this year and performed inline with BRF. That says when investors embrace Brazil again, BRAZ has the potential to shine.