For Your Consideration

For Your Consideration: Brazil

If you want to look for diversification, leave the country.

Most of you have never thought about investing overseas. You almost certainly haven’t thought about Brazil as an investable country. It’s not exactly a country that comes up in everyday conversation in the US. But while you and the people at work were whining about the US taking a massive dump, Brazil started a new stealth bull market. The US reached its recent peak on Sep 21 and as of today is down around -12%. In the same amount of time, Brazil is up 27%. If you think a move that fast means that the opportunity is gone, consider that on its last run from Jan 2016 to Jan 2018 the market gained around 258%. We may see that kind of growth in the US, but we sure as hell don’t see it in 2 years.

A few points to consider: The larger companies in Brazil have a very heavy tilt towards oil and mining. If you take issue with this because of conservation reasons, you may want to research some of the small cap ETFs* which are a bit more diverse and don’t weigh so heavily in that field. EWZ, the most commonly traded Brazil ETF has about 20% in 2 oil and mining stocks alone (Vale and PetroBras) the other 2 largest holdings are banks (Itau Unibanco and Bank Bradesco) All together, just those 4 stocks constitute about 41% of the fund. While in the small-cap etfs the largest holding is around 4-5%.

Another issue you may want to read up on is their new leader, Jair Bolsonaro. We are trying our best to stay away from politics here, but before you buy into Brazil you may want to do some digging. He’s a piece of work. Consider that scandals and human rights issues can greatly affect the markets. However, even if you decide you completely despise what he stands for; you need to consider what it means to invest in a country for its people and potential vs. it’s current leader. People may complain about Trump or Obama, but we’ve never met anybody who has stated the US is un-investable because of the president.

 
Brazil ETFs

brazil etfs1

*ETF means exchange traded fund. It holds a basket of stocks much like a mutual fund, but trades like a stock. Small-cap means that the companies held by the fund are much smaller by market capitalization and usually grow at a faster rate. They also typically exhibit a leveraged effect during bull markets.