How to invest in Brazil? This ETF is up 50% in 3 years

Brazil is emerging as an increasingly significant economic force globally. According to recent projections from the International Monetary Fund (IMF), Brazil could even reach tenth place among the world’s largest economies by 2023.

This ranking was calculated based on Brazil’s Gross Domestic Product (GDP), which is expected to register growth of 2.31% this year. Although expectations were slightly lower than those of the Brazilian government (3%), experts believe that Brazil could overtake both Canada and Italy in the ranking, placing it in eighth place.

The reason for this positive outlook is the economic dynamism that Brazil has demonstrated in recent years, with growth exceeding expectations in the second quarter of 2023.

The expansion of industry and services contributed significantly to economic growth, with a GDP surge of 0.9% in the April-June period compared to the previous quarter. Although the growth rate is slightly lower than in previous quarters, it is still far above market expectations. The performance of industry and services, which make up approximately 70% of the Brazilian economy, has had a positive impact on the overall GDP.

In this article, we will analyze one of the best ETFs in the last 3 years which has grown over 50%.

Xtrackers MSCI Brazil UCITS ETF 1C

The Xtrackers MSCI Brazil UCITS ETF 1C is a passively managed investment fund that aims to replicate the performance of the MSCI Brazil index, which tracks the largest and most liquid Brazilian stocks. In this review, we will carefully examine this ETF in terms of expenses, structure, performance, portfolio, risk, and more.

Expenses and Structure

The ETF’s total expense ratio (TER) is 0.65% per annum. Although this TER is slightly higher than the ETF average, the cost could be justified considering the specificity of the Brazilian market and the physical structure of the ETF. This ETF uses full physical replication, which means it physically purchases all components of the underlying index, ensuring close alignment with market performance. Additionally, dividends generated from investments are accumulated and reinvested in the ETF, allowing investors to fully benefit from the earnings.

Size and History

The ETF is relatively small, with assets under management of around 70 million Euro and was launched on 22 June 2007, so it has a very long history. Although the size of the fund is limited, this could offer growth opportunities as the Brazilian market continues to evolve.

Portfolio Composition

This ETF’s portfolio is broadly diversified, with a significant portion of its investments concentrated in the top 10 holdings, which represent 58.31% of the total. Among the first holdings, the main ones include:

• VALID
• PETROBRAS
• BRAZILIAN OIL
• ITAU UNIBANCO

This ETF offers significant exposure to the financial (24.82%), commodities (21.82%), and energy (19.19%) sectors providing adequate diversification across key sectors of the Brazilian economy.

Performance and returns

The Xtrackers MSCI Brazil ETF has demonstrated mixed results over the years. Over the year, the ETF was up 16.91%, while the 3-year return was 50.49%. However, in 2020 the ETF suffered a significant loss of 26.36%, reflecting the global market challenges and volatility during that time. Overall, long-term performance has been positive since the ETF’s launch, although there have been some up-and-down years.

Risk and volatility

The ETF has recorded 1-year volatility of 27.85%, which indicates some sensitivity to price fluctuations. This is in line with typical conditions for a geographic area like Brazil. Currency risk is not hedged, so investors are exposed to the risk of exchange rate fluctuations between the euro and the US dollar, as the ETF is denominated in dollars. The maximum drawdown at 1 year was -23.94%, while at 3 years it was -28.53%. However, the maximum drawdown since the ETF’s launch has been significant, reaching -69.45%. This highlights the volatility and risk associated with an investment in this ETF.

Where it is traded: the markets

The ETF is listed on several exchanges, including the Milan Stock Exchange (EUR), the London Stock Exchange (GBX and USD), the SIX Swiss Exchange (USD), the Stockholm Stock Exchange (SEK) and the Stuttgart Stock Exchange (EUR). This offers a range of options for investors looking to trade the ETF in different currencies.

In summary, the Xtrackers MSCI Brazil UCITS ETF 1C offers potential investors an opportunity to expose their portfolio to Brazilian stocks. However, it is important to note that investing in emerging markets such as Brazil involves a certain degree of risk and volatility. Investors should carefully consider their investment strategy and risk tolerance before considering this ETF. The ETF’s physical structure, along with its history of mixed performance, makes this investment vehicle suitable for investors seeking exposure to Brazil, but are willing to endure the price fluctuations associated with this market.

Disclaimer The information and considerations contained in this article should not be used as the sole and principal basis on which to make investment decisions. The reader retains full freedom in his own investment choices and full responsibility in making them since he alone knows his risk appetite and his time horizon. The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation for public savings.

Original article published on Money.it Italy 2023-11-08 18:29:00. Original title: Come investire in Brasile? Questo ETF è salito del 50% in 3 anni