Daily ETF Watch: Brazil Bond Fund Planned

WisdomTree has filed for the ETF market’s first single-country bond fund targeting Brazil, Latin America’s biggest economy.

Although the firm has several actively managed fixed-income ETFs, the WisdomTree Brazil Bond Fund will track an in-house modified market-cap-weighted index, the prospectus says. The benchmark’s weightings will be capped to promote diversification, and roughly 50 percent of the index will represent government debt. The other half will be represent corporate and quasi-sovereign debt.

Brazil’s stock market has shown lackluster performance recently. Worse yet, the re-election of Dilma Rousseff resulted in a noticeable sell-off of Brazilian stocks and currency. Rousseff is less pro-business than her main opponent.

The possibility of a continued slump for Brazilian stocks could put the spotlight on Brazil’s fixed-income market for investors looking to get exposure to one of the world’s largest economies via some other route than its stock market.

There are not a lot of single-country bond ETFs in comparison with those focused on U.S. markets. In the emerging market space, there are only two focused on China’s bond markets. In the developed space, WisdomTree has funds covering Australia/New Zealand and Europe, alongside a few other ETF providers. Notably, PIMCO closed its funds targeting the German, Australian and Canadian bond markets earlier this year due to lack of assets.

The index does not target any particular duration, according to the prospectus; instead, it’s letting market conditions determine that aspect of its profile. It also covers investment-grade and high-yield debt.

The fund is permitted to invest up to 20 percent of its portfolio in derivatives and additional fixed-income securities that are denominated in Brazilian reais. It will use a Cayman Islands-based subsidiary to invest in Brazilian government bonds.

The filing did not include a ticker or expense ratio.