Barclays PLC launched three exchange-traded funds in Brazil on Dec. 2, the first ETFs from the world's biggest ETF manager for the Brazilian market.
The Brazilian iShares tracks three indexes: 1) the Bovespa Index, which holds the 66 most-traded stocks on the main Brazilian stock exchange; 2) the BM&F Bovespa Mid-Large Cap Index, which holds 69 stocks representing the top 85% of the market capitalization on the Sao Paolo exchange (adjusted for liquidity); and 3) the BM&F Small Cap index, which holds 71 companies representing the bottom 15% of the exchange's market cap.
Brazil is one of Latin America's biggest fund markets, and the Bovespa's profile as a major global exchange, the largest in South America, has been raised in recent years. Barclays Global Investors has plans to significantly expand its ETF staff in its Sao Paolo office over the next few years as part of its major push into South America (see story here).
Brazil's wealth soared on commodities market gains in recent years, and some of its top companies, including mining giant Vale and oil company Petrobras, had huge earnings relative to global competitors. Brazil has taken a tumble this year as the commodities markets dropped and the U.S. dollar surged, buts its long-term prospects are still positive for ETFs, as its trading volumes are already higher than those on the Mexican Bolsa de Valores. Bovespa officials said that investor demand will lead to the creation of additional ETFs and indexes before year-end.
In particular, Brazil's Multimercado fund market, essentially hedge funds of funds, are expected to be big users of ETFs. These funds are not allowed to invest a greater percentage of their assets in foreign investments. Barclays executives said the ETFs should initially attract Brazilian institutional investors and then, gradually, individual investors. Brazil still tightly controls the extent to which individual investors can invest in foreign securities, but there has been a regulatory push of late to liberalize the government policies.
BGI said the three ETFs have initial portfolios totaling about 100 million Brazilian reals (U.S. $41 million) in assets.
In the U.S., the iShares MSCI Brazil Index Fund (NYSE Arca: EWZ) has daily volume of about $1 billion, making it among the most traded ETFs, according to BGI.