A quite comprehensive article from BusinessWeek on many of the things we've discussed on the blog over the past 2 years on what makes Brazil an enticing long term story. [
May 16, 2008: Brazil is Sexy] Or perhaps we can put this story this under the category of countries who act fiscally conservative, expand their middle class, and will benefit in the long run. [
May 29, 2009: US v Japan v South Korea]
Or [
May 28, 2009: WSJ - Prudent Chile Thrives Amid Downturn]
As it now seems abundantly clear in this country permanent short term gratification by utilizing "kick the can" policies will have us rolling from one emergency to another over the coming decades. I guess this continues until one day there is no blood left to squeeze but perhaps we can keep the gig going for another 10, 15, 20 years. So we'll continue looking for opportunities outside the borders in responsible '2nd' or '3rd world' countries - Chile appears to be one country with a leadership that actually thinks out past the next 180 days.
It might sound overdramatic and it will take many years to deconstruct a superpower but as the middle class slowly erodes year by year, you are seeing the foundation exposed for what it is. The peasants realize "something" is wrong the past decade but can't put their finger on it. It appears unlike the late 1920s when "the wrong" was righted by huge change, this time the path we were on... will just continue.
But enough about that - we're kicking the can again and doing the kicking motion of Alan Greenspan and our former political "leaders" proud! You'd think our leg would have fallen off by now with how much action it is getting. Prosperity (of the paper printing variety) is everywhere (see those cars flying off the lots!) Let's turn back to Brazil....
We mentioned a newer ETF which helps get exposure to Brazilian consumers back in early June - an enticing proposition as it is nearly impossible for US investors to easily get exposure to "middle class Brazil". [
Jun 2, 2009: Market Vectors Brazil Small Cap (BRF) - a New ETF for Exposure to Brazil]. Unlike
iShares Brazil (EWZ) which is nearly 50% allocated to two companies -
Petrobras (
NYSE: PBR) and
Vale (
NYSE: VALE) [hence I find flawed as a way to get exposure to a country] BRF is very broad. It has performed very well since my piece but again - how much of this is due to "great investment selection" and how much is due to the massively correlated "rising tide lifts all boats" (aka student body trading) that seems to dominate all markets nowadays, is an open question.
I was also curious if over time the two ETFs would separate or if they would just track 1:1 as "smaller cap consumer based" Brazil simply was hostage to "large cap commodity based" Brazil. My hope was the consumer based ETF would have some extra oomph but when we last looked it was too new to tell. Since June 2nd EWZ has rallied from $57.40 to $60.80 (+5.9%) while BRF has rallied from $28.75 to $36.00 (+25.2%)
So at least in the short run, my preference for something more broad based and facing the consumer was superior to buying an ETF that is predominantly 2 companies. This good performance has also created some more interest in the ETF as we are getting a lot of 200K and 300K share days, as opposed to 100K share days a few months ago; the more liquidity the better.
