As has been frequently noted, this has been another trying year for the iShares MSCI Brazil Index (ETF) (NYSE:EWZ). Quantifying the largest Brazil exchange-traded fund's woes is not difficult.
Entering Tuesday, EWZ was sporting a 35.4 percent year-to-date loss. That is more than quadruple the loss sported by the MSCI Emerging Markets Index and more than seven times the year-to-date losses of the WisdomTree India Earnings Fund (ETF) (NYSE:EPI) and the iShares FTSE/Xinhua China 25 Index (ETF) (NYSE:FXI).
Emerging Markets Have Rebounded
To be fair, emerging markets equities and ETFs have recently rebounded with EWZ getting in on that act. Over the past month, the big Brazil ETF is higher by just over 12 percent, but that gain is mostly in line with that of the iShares MSCI Emerging Markets Indx (ETF) (NYSE:EEM). That is notable because EEM, which allocates 5.9 percent of its weight to Brazilian stocks, has a three-year standard deviation of about 13.8 percent.
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EWZ's three-year standard deviation is more than double EEM's at nearly 28 percent, meaning the Brazil ETF needs to handily outperform the broader emerging markets fund to make the added risk worthwhile.
Options Traders And Volatility
On the other hand, volatility is something options traders often seek out, whether to buy or to sell. In the case of EWZ, some ambitious options traders are betting on more upside for the Brazil ETF.
Last week we spoke about upside call interest in beaten down EWZ (iShares MSCI Brazil), and this trend has continued, as we saw the March 27.50 calls trade yesterday in decent size. In the trailing one month period the fund has seen about $100 million leave the door via redemption activity, putting its asset base at about $1.8 billion, said Street One Financial Vice President Paul Weisbruch in a note out Tuesday.
The Political Influence In Brazil
Options traders stepping into EWZ from the long side in recent days is not altogether surprising. After all, it was last week when market participants learned that momentum for impeaching Brazilian President Dilma Rousseff is increasing. Of course, the caveat with using Rousseff's potential impeachment as an upside catalyst for EWZ is that removing her from office could take awhile, or it may not happen at all.
Not All Traders Trust The Bull
Predictably, some traders are not buying the bullish Brazil thesis. Short sales data confirm as much, with those data points indicating that number of EWZ shares on loan to short sellers has recently been on the rise.
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