A Brazilian Bounce For These ETFs

The iShares MSCI Brazil Index Fund (NYSE:EWZ), the largest ETF tracking Latin America's largest economy, and other Brazil-specific funds have had a rough go in 2012. Rather than taking on direct Brazil risk, investors could have gotten some exposure to the country with the Vanguard MSCI Emerging Markets ETF (NYSE:VWO), earning a year-to-date return of almost 12.1 percent. EWZ is off 1.7 percent year-to-date.

Myriad problems, including but not limited to slowing growth, a plunging real, weakness in state-controlled oil giant Petrobras (NYSE:PBR) and a political environment that gives foreign investors pause have all plagued EWZ and related ETFs.

There is good news, that being EWZ and friends have notched impressive rallies as of late. EWZ is up almost three percent in the past month while the Market Vectors Brazil Small-Cap ETF (NYSE:BRF) has surged 6.8 percent over the same time.

Investors are responding. EWZ has attracted more than $600 million in net inflows in the past week, according to a note from StreetOne Financial published on Friday. StreetOne points out that EWZ is nearing its 200-day moving average, a significant technical area for the fund because some technical analysts believe a security is in a bear market until it rises above the 200-day line. EWZ is 2.2 percent away from its 200-day simple moving average.

Speaking of technicals, EWZ made an important stand around $50 late in the second quarter. Had the fund languished below that level for too long, selling pressure would have likely intensified. Instead, the dip below $50 was bought and EWZ has jumped 10.2 percent since June 22.

Despite the recent bullishness in some Brazil-specific ETFs, investors need to be highly selective with these funds. For example, playing Brazilian infrastructure would have seemed like a smart bet in August. Last month, the country announced a $66 billion infrastructure stimulus program, but the EGShares Brazil Infrastructure ETF (NYSE:BRXX) has been one of the worst-performing Brazil ETFs since that announcement. BRXX is down 4.5 percent in the past month.

Even one hedge fund legend has yet to strike gold with EWZ. Not only has BRF recently outperformed EWZ, so has the thinly traded Global X Brazil Financials ETF (NYSE:BRAF).

However, each member of the BRAF, BRF and EWZ trio have outpaced the Global X Brazil Mid Cap ETF (NYSE:BRAZ), the Global X Brazil Consumer ETF (NYSE:BRAQ) and the First Trust Brazil AlphaDEX Fund (NYSE:FBZ) in the past month.

In defense of BRAF, the fund has surged almost 16 percent in the past three months and reclaimed its 200-day line in early August. Bolstering the technical outlook for BRAF is the fact that the fund recently experienced the alluring golden cross.

Investors face decisions when it comes to Brazil ETFs. While EWZ will remain the bellwether fund for this country and inflows to the ETF are a positive sign, those looking for pure performance should consider other Brazilian opportunities in addition to EWZ.

For more on Latin America ETFs, click here.

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