What's The Difference? A Look At Two Brazil ETFs

On Wednesday, we examined the differences between the new First Trust South Korea AlphaDEX Fund FKO and the well-heeled iShares MSCI South Korea Index Fund EWY. In that examination, we turned up some noteworthy differences between the two ETFs that, at the very least, indicate there is room for FKO to propser to some extent. Also among the suite of new AlphaDEX funds introduced earlier this week by First Trust is the First Trust Brazil AlphaDEX Fund FBZ and once again, this First Trust offering faces major competition in the form of an iShares ETF. Of course, we're referring to the iShares MSCI Brazil Index Fund EWZ. Despite the popularity of Brazil with U.S. ETF investors, EWZ really hasn't gotten a direct competitor since its debut almost 11 years ago. Sure, there are plenty of multi-country ETFs that offer big weights to Brazil and there are even two Brazil-specific small-cap ETFs, but EWZ has gone basically untouched when it comes to having a direct rival. Could FBZ be that rival? Perhaps, but as we learned with FKO and EWY, First Trust has an uphill battle here to even sniff EWZ's $13.3 billion in assets under management. And as we learned with our South Korea comparison, FBZ has fees of 0.8%, well above EWZ's expense ratio of 0.61%. On the bright side for FBZ and for those investors looking for an alternative to EWZ, there are some differences worth highlighting. While EWZ holds 85 stocks, Petrobras PBR and Vale VALE securities account for almost 36% of the ETF's weight. Of FBZ's 50 holdings, Petrobras gets a weight of 3.13% and Vale is surprisingly left out of the top-10. There are also major differences at the sector level. In EWZ, energy, financials and materials each get weights of roughly 24%. In FBZ, energy and financials COMBINE for about 24% of the ETF's weight while materials check in at about 19%. FBZ looks like the better bet for the investor looking to get exposure to Brazil's high-yielding utilities. That sector accounts for 23% of the ETF's weight, quadruple the exposure EWZ offers to the group. Want to tap into Brazil's growing middle class through the consumer discretionary sector? Again, FBZ is the better bet with an almost 11% allocation to that sector, more than double what EWZ offers. As we saw with FKO, FBZ uses the same dollar-weighted index methodology while EWZ uses passive indexing and that's likely the reason behind the difference in the respective expense ratios. While there is probably room for FKO to make some inroads against EWY, a stronger case can be made for FBZ in its matchup against EWZ as investors may prefer to eschew the Petrobras/Vale-heavy ETF in favor of a more balanced approach to Brazil.