Answer

An analysis of Brazil’s EWZ between 2006 and 2010

Brazil, an emerging marketplace economy, has been enticing investors’ attention for a number of years, and as a member of BRIC (Brazil, Russia, India, and China), it has been generating stellar outcomes for investors desiring to take certain extra risks (Jones, 2018). Nonetheless, emerging marketplaces, as ETF Professor (2019) notes, generally carry additional risks since their economies are expanding though can be unstable. Among the best ways through which an investor can gain exposure to Brazil is extra-traded funds (ETFs): since ETFs invest in several stocks, an investor has more protection than they would if they bought a single stock. According to GlobeNewswire (2018), ETFs are investment funds that hold assets like commodities, stocks, bonds, and are traded on stock exchanges. They are attractive to investors owing to their tax efficiency and low costs and are a very famous kind of exchange-traded product (Jones, 2018). Using the case of ETF in Brazil, this paper provides an analysis of iShares MSCI Brazil Capped ETF (EWZ) against the U.S. dollar for a period of five years ending with 2010.

iShares MSCI Brazil Capped ETF (EWZ) was formed to track the performance of the MSCI Brazil 25/50 Index. ETF Professor (2019) notes that to realize this, the fund did invest an amount of $5.1 billion asset base in the American depository receipts (ADRs) stocks that comprise the underlying benchmark. Basic materials and financials dominate sector exposure, with corresponding allocations of 16.57% and 29.37% (Ragab, 2017). On tight hands, about 35 million shares change hands daily, assisting in keeping trading costs low (Arturo et al., 2020).  Meanwhile, about 0.60% expense ratio, according to Zawadzki (2020), makes buy-and-hold investing a feasible and worthwhile option. In the past three months, EWZ has rallied about 30%, outsmarting MSCI Emerging Markets Index over the same duration by approximately 9% as of 22^nd July 2020 (Arturo et al., 2020). While EWZ has constantly pushed higher in the recent trading sessions, Ragab (2017) argues that it finds substantial overhead opposition at $34 from the downward and high-sloping 200-day SMA (simple moving average). Brazilian ETFs generated good returns in 2017, yet they have stumbled from 2018 to 2020. Eventually, nonetheless, the ETFs have the potential for representing a good investment so long as investors judiciously choose.

Launched on 10^th July 2000 by BlackRock, Inc., EWZ is managed by BlackRock Fund Advisors. EWZ invests in Brazil’s public equity marketplace. The fund invests in companies that are operating across diversified industries and in value and growth stocks of firms across diversified marketplace capitalization (GlobeNewswire, 2018). Through the use of the representative sampling technique, the fund tracks the performance of the MSCI Brazil 25/50 Index. EWZ invests at a minimum of 95% of its assets in Brazil’s securities of its index. To better understand the performance of EWZ against the U.S. dollar.

Table 1: EWZ’s Key Statistics

(ETF Database, 2021).

From the above table 1, while EWZ’s year-to-date (YTD) returns within the last three years have been negative, the returns were positive in the last five or so years. This shows that EWZ performed well in the last five years or so against the US dollar. The bad performance in the last year can be associated with the decline in trade activities as a result of the dawn of the COVID-19 pandemic (Arturo et al., 2020). According to Ragab (2017), the pandemic caused companies’ closure, job losses, and retrenchments, resulting in reduced purchasing power among buyers both in Brazil and the world as a whole. The positive 7.09% return in the last three months indicates that the EFT is slowly getting into use owing to the decline in the severity of the pandemic globally as supported by tables 2, 3, and 4 below. 

Table 2: EWZ’s performance

(ETF Database, 2021).

From the above findings, an analysis of EWZ’s performance against the U.S. dollar using the latest figures as provided by Yahoo! Finance is given below.

Table 3: EWZ’s returns

(Yahoo! Finance, 2021).  

Table 4: EWZ’s Trading Data

(ETF Database, 2021).

EWZ is traded across all Brazil’s industries, as shown in figure 1 below.

Figure 1: Fund Top Holdings (Yahoo! Finance, 2021).

From the above figure 1, EWZ tracks a marketplace-capitalization-weighted index of Brazilian companies covering all market-capitalization- spectrum. However, this paper aimed at analyzing the performance of EWZ against the U.S. dollar between 2004 and 2010. Figure 2 below shows a snapshot of how the EWZ performed during the stated period, registering  positive growth. Around 2009 June, EWZ registered the highest return between 2004 and 2010, with a dividend of 1.321 million U.S. dollars (Zawadzki, 2020). The fund flows for EWZ have been fluctuating between 2004 and 2010 due to adverse economic crises or conditions that prevailed during the period. During and after the crisis, people’s willingness to invest in an emerging economy, like Brazil, reduced, resulting in retarded growth in the use of EWZ. While the growth has been slow towards realizing the record-high amount that was registered between 2008 and 2009, there has been positive growth in EWZ’s fund. See Figure 2 and table 5 below.

Figure 2: EWZ’s Funds Flows between 2004 and 2010 (Yahoo! Finance, 2021).

Table 5: EWZ’s performance in terms of dividends between 2004 and 2010

Figure 3: EWZ volume and price chart (Yahoo! Finance, 2021).

According to the P/E ratio, the EWZ valuation reveals that relative to its peers, EWZ ranks 6 out of 14, as shown in figure 4. Similarly, EWZ’s valuation with regard to dividend performance ranks 7 out of 14, as shown in figure 4.

Figure 4: EWZ valuation (ETF Database, 2021).

Evidently, Brazil is becoming a famous target for investors.  The rapid growth of EWZ in Brazil has been associated with a number of factors. The first is liquidity. Like its peers, EWZ offers two sources of liquidity: traditional liquidity that is gauged by secondary marketplace trading volume; and the underlying liquidity through creation as well as redemption process (Arturo et al., 2020).  The second is transparency since investors know the composition of EWZ at any particular time (Zawadzki, 2020). Thirdly, there is an aspect of diversification since EWZ provides immediate exposure to a group/basket of securities for immediate diversification and offers a variety of asset classes, like commodities, bonds, and equities, among others (Zawadzki, 2020). Since EWZ is listed on exchanges and is tradable at any given time when the market is opened and pricing is constant across any particular day, giving a sense of flexibility. Lastly, EWZ is relatively cost-effective and offers securities lending.

From the foregoing analysis above, it is evident that the use of EWZ, like any other EFT, is prospective. With the Brazilian economy being an emerging marketplace, the fund is likely to continue being invested in the various aspects of the economy, going forward. Against the U.S. dollar, EWZ’s performance is splendid. While there was a fluctuation in in 2009, the same has seen a positive trend since 2010, though slowly.  

This question has been answered

REFERENCES