ETF Investors Were Skittish Ahead Of Brazil Impeachment Vote

Ahead of Sunday's vote by Brazil's lower house of congress to impeach President Dilma Rousseff, exchange traded funds investors did not scamper into ETFs tracking Latin America's largest economy in big numbers.

As of 12 AM Eastern time, 439 votes had been cast in Brazil's lower congressional body with 321 voting in favor of impeachment. The number needed to move the vote over to Brazil's senate is 344. Once the senate considers Rousseff's fate, a simple majority is all that is needed. The vote to impeach Rousseff took place less than 110 days from Brazil's hosting of the 2016 Summer Olympics. 

Speculation that Rousseff's grasp on power is tenuous at best and that impeachment is a real possibility are among the primary reasons the iShares MSCI Brazil Capped ETF EWZ is up more than 43 percent year-to-date, making it one of this year's best-performing single-country emerging markets ETFs. However, EWZ ebullience, though solid, was somewhat muted ahead of Sunday's impeachment vote despite predictions that a potentially big week was coming for the largest Brazil ETF and rival funds. 

Last week, investors added just under $94 million to EWZ. That is not a bad haul, but it is small relative to the ETF's more than $3.1 billion in assets under management. Up nearly 28 percent this year, the Market Vectors Brazil Small-Cap ETF BRF failed to attract new assets last week, but the Brazil small-cap ETF did not lose any capital, either.

Investors also displayed tepid enthusiasm for ETFs that offer exposure to Brazil without the commitment of a single-country ETF like BRF or EWZ. For example, the iShares Latin America 40 ETF ILF, which is up more than 23 percent year-to-date, added about $43 million in new assets last week. Solid, but small when considering the ETF has $745.5 million in assets. ILF devotes almost half its weight to Brazilian stocks and all of the ETF's top 10 holdings are Brazilian or Mexican names.

In what is arguably the clearest sign that some aggressive traders are either ready to take profits in Brazil ETFs or were merely trimming exposure ahead of Sunday's impeachment vote, the Direxion Daily Brazil Bull 3X Shares BRZU lost $10 million in assets last week.

BRZU, the triple-leveraged answer to EWZ, has more than doubled this year, but it is easy to see why traders reduced exposure to the ETF ahead of Sunday's vote. Over the past month, only one of Direxion's leveraged bullish ETFs has been more volatile than BRZU, according to issuer data.

For the five days ending April 14, BRZU saw a modest decline in volume as its turnover for that period was 4.3 percent below the trailing 20-day average, according to Direxion data.