Brazilian ETFs In Focus Amid Increasingly Bullish Options Bets

Image of Brazil flag flying

Emerging Markets have taken a nice leg-up in recent sessions with EEM (iShares MSCI Emerging Markets, Expense Ratio 0.72%) for instance eclipsing $40 in the past two sessions and following through strongly this morning in early trading.

Year-to-date, EEM has taken in a respectable over $780 million in new assets via creations, but as we have mentioned before, the real story is IEMG (iShares Core MSCI Emerging Markets, Expense Ratio 0.14%) pulling in more than $7.8 billion during this same time frame.

While making up only 6% of the underlying basket in IEMG and EEM, Brazil is still worth talking about, because we have seen some upside call action in benchmark name linked to the Brazilian equity market EWZ (iShares MSCI Brazil, Expense Ratio 0.63%) involving January 40 strike calls.

EWZ is presently trading in the low $38’s, but the fund did briefly trade above $40 in late February before taking a bit of a dive and trading below its 50 day MA for a couple months. While broad based Emerging Markets funds are trading at new 52-week highs today for instance, EWZ and other Brazil related funds still have some work to do, and perhaps the distant January 40 call buyers foresee the performance gap narrowing in coming months (EWZ is trailing EEM for instance by more than 500 basis points in trailing 6-month performance and trailing by nearly 200 basis points YTD).

From a fund flows standpoint, EWZ has reeled in about $840 million in new assets in 2017, making its total AUM north of $5.5 billion, which puts it leaps and bounds ahead of the next largest ETF in the segment which is FBZ (First Trust Brazil AlphaDEX, Expense Ratio 0.80%, $148 million in AUM). Given the upside bias of the latest call trading in EWZ, we should also be watching the Bull levered BRZU (Direxion Daily Brazil Bull 3X, Expense Ratio 1.11%, $81 million in AUM) and UBR (ProShares Ultra MSCI Brazil, Expense Ratio 0.95%, $18 million in AUM).

From a sector standpoint, Financials are well represented in Brazil, making up 37% of the overall portfolio including the #1 weighted Itau Unibanco Holding SA (11.94%), and #2 weighted Banco Bradesco SA (8.58%), followed by Consumer Staples (16%) and Energy (12%).

The iShares MSCI Brazil Index ETF (NYSE:EWZ) was trading at $37.88 per share on Tuesday afternoon, up $0.41 (+1.09%). Year-to-date, EWZ has gained 13.62%, versus a 6.70% rise in the benchmark S&P 500 index during the same period.

EWZ currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #13 of 21 ETFs in the Latin America ETFs category.


Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, Paul Weisbruch, does not endorse or recommend any issuer or security mentioned herein.

About the Author: Paul Weisbruch

paul-weisbruchPaul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and ETFTrends.com for instance.

He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.