Itaú Unibanco: Largest Private-Controlled Bank in Latin America

Itaú is the second largest bank in Brazil. Only behind Banco do Brasil, which is a government-controlled bank, even though part of its equity is traded at Bovespa. We do not recommend exposure to government-controlled companies in Brazil so Itaú is the largest bank we cover in LATAM.


Itaú Unibanco was formed as the merge of two of Brazil’s largest banks: Itaú and Unibanco. Whey they merged, they were the 2nd and 3rd private-controlled banks and created a huge institution and left Bradesco in second place.

There is a joke in Brazil that goes: “The three best businesses for you to have in Brazil are: 1st a well-managed bank, 2nd a bank and 3rd a badly-managed bank ”.

Ok. The joke may be an exaggeration. But the bank industry does have a lot going for it in Brazil. Unlike in most developed countries, where small banks and credit unions are always present and relatively strong, in Brazil, the bank industry has a well-established oligopoly, where the 4 major banks have together around 70% of the market share. This oligopoly along with the high switching-cost in the bank industry gives them a good pricing advantage.

The bank industry in Brazil is also conservatively regulated and highly lucrative, with spreads north of 10%. These two factors reduce considerably the risk for small investors in these banks.

Itaú Unibanco has over $1 Trillion in assets. It provides retail banking, investment banking, real estate financing, leasing, consumer credit card, foreign exchange and foreign trade financing services.

Itau Unibanco Holding

Industry* Banking, Insurance, Card Processing
Bovespa Ticker ITUB3, ITUB4
EBI Rating 5-star

Historical Moment for Brazil!

José Dirceu Escorted by Federal Police

Brazilian supreme court has mandated the immediate imprisonment of eleven politicians involved in curruption during the government Lula.

First of all, this topic should not be used by other parties for political purposes. The ones that are mostly celebrating the sentence, PSDB supporters, should remember that the CPI (parlamentary investigation) has determined that the mensalão has cost R$ 10 million to the country. It may have been more, however, only the propinoduto, operation to steal money from the state of São Paulo in the PSDB government, has cost the state US$ 50 million ( ~ R$ 110 million), according to investigations concluded in Europe, destination of great part of the stolen money

Having said that, the moment is definitely historic! It’s one of those few things that still gives us hope in Brazil: the independence of the three powers, even though it’s often debatable.

Impunity is THE biggest problem of Brazil as a nation! It’s the fuel for all of the curruption that criples the country and causes that no money is left to invest in areas with screaming needs, such as: healthcare, education, infrastructure, public transportation etc.

Curruption in Brazil is so widespread due to the complete awareness from politicians that they are never going to suffer any consequence like being caught and going to jail. In the worst case, they lose their term and come back in the next election. Or retire with a fat checking account.

For that reason, the moment is historic! The case sets a precedent and shows politicians that they can indeed go to jail. Now, that doesn’t mean everything is going to change and curruption is over in Brazil. Far from that. But they will think twice now before getting into ilicit behavior.

To get permanent results, we need more! We need serious investitgations also in the state and municipal levels so this doesn’t become just a flag for the next elections in 2014. The case brings hope of a Brazil with less curruption in the future. This is indeed something to fight for in the popular riots: the of impunity! It’s the best way to fight for a better Brazil for the next generations.

Translation from my original post at:

Brazil Inflation

Find out what each of the Brazilian Inflation indexes are.

Oct/13 Sep/13 2013 * 2012 12 Months *
IPCA (IBGE) 0,57 0,35 4,38 5,84 5,84
INPC (IBGE) 0,61 0,27 4,25 6,20 5,58
IPCA-E (IBGE) - 0,27 3,97 5,78 5,93
IGP-DI (FGV) 0,63 1,36 4,51 8,10 5,46
IPC-DI Core (FGV) 0,41 0,45 4,25 4,81 5,23
IPA-DI 0,71 1,90 4,13 9,13 5,07
IPC-DI 0,55 0,30 4,20 5,74 5,36
INCC-DI 0,26 0,43 7,61 7,12 8,14
IGP-M (FGV) 0,86 1,50 4,58 7,82 5,27
IPA-M 1,09 2,11 4,29 8,63 4,85
IPC-M 0,43 0,27 4,10 5,79 5,22
INCC-M 0,33 0,43 7,53 7,23 8,08
IGP-10 (FGV) 1,11 1,05 4,47 7,42 4,84
IPA-10 1,48 1,46 4,16 8,06 4,25
IPC-10 0,33 0,22 4,13 5,73 5,19
INCC-10 0,44 0,34 7,34 7,05 7,95
IPC (FIPE) 0,48 0,25 2,74 5,10 4,24
ICV (DIEESE) 0,64 0,24 5,11 6,41 6,16
Obs.: IGP-M 1st parcial of nov/13 = 0,30% and IPC-FIPE = 0,55%


Sugar and Ethanol Producer? Cosan is much more than that nowadays!

Cosan’s most known business is indeed Ethanol and Sugar production. That’s how the company started and they are still the largest producer in Brazil and a major player worldwide. However, due to volatility in these commodities’ prices, Cosan’s management has been diversifying its activities in the last few years and now half of it’s EBITDA comes from other businesses.

Cosan today operates on production, transportation and distribution of renewable energy sources. They prospect land, grow and process sugarcane, distribute fuels, transport and sell sugar on the domestic and international markets and produce and sells lubrificants. It is the world’s first vertically integrated bioenergy company. The below image, shows the different parts of the company:

Cosan Group


In the fiscal year ending in March, 31st, 2013, the company reported only 20% of its EBITDA from Raízen Combustíveis, the traditional Sugar and Ethanol business. Revenue and EBITDA were distributed as follows:

Cosan Numbers 2013














Other Business above is composed of manufacturing and distribution activities for the Mobil and Comma brands, base oil distribution and the corporate structure of Cosan, except Raízen.

Exchange rate was around BRL 2 for US$ 1 at the end of FY2013.

Cosan Ltd.

The diversified and vertical business model adopted by Cosan provides a much more stable operating environment. Furthermore, Cosan operates with renewable energy and presentes several areas for growth in the next decade or two. Overall, the company deserves a 4-star EBI Rating.

ADR Ticker CZZ
Bovespa Ticker CSAN3, CZLT33
Investor Relations Website
Industry* Renewable Energy
EBI Rating 4-star

Brazilian GDP beats expectation in Q3 and grows 1.5% QoQ. But is that sustainable?

The result of the GDP may have shown some relief that the economy is still growing. However, this result is still not a guarantee that the situation is better and that the growth in the year will be higher than current expectations, around 2.5% YoY, the so called PIBinho, diminutive for GDP in Portuguese.

Manufacturing GDP should fall significantly this Q3, due to deceleration in the transformation industry and important slowdown in the building industry.

Inflation is also close to the top of the range targeted by the central bank: 2.5% – 6.5%. This is having them raise the interest rate index SELIC, which is already at 9% a year. The recent weakening of Brazilian real will cause inflationary pressures and will cause the central bank to keep raising rates and cooling down the economy growth.

Any military intervention in Syria would cause an even worse scenario for GDP growth, with investments flowing from emerging markets into US treasuries and other safe options in developed world. This will reduce the money available for investment in Brazil as well as get the Brazilian Real even weaker.

The good news is that sectors mainly focused on exports and sectors that compete heavily with imports are getting a relief from the current weaker Real. That is the case of steal, lumber, agriculture and manufacturing in general. This can in the mid-term help offset this down spiral caused by weak GDP/ High Inflation.

So, while the 1.5% QoQ growth was better than expected and a little bit of a relief, especially to the politicians, this number is looking at the rear-view mirror and should not continue to happen in the short term and even in the long term, if fiscal reforms are not adopted in the country.

IPCA, IGP-M, IPC, INCC. How to make sense of Brazilian Inflation indexes?

IPCA (Índice Nacional de Preços ao Consumidor Amplo) – Broad National Consumer Price Index: Equivalent to the CPI in the US. This is the official consumer inflation index. Federal government uses it to set inflation goals. Current target is 4.5% with a margin of 2% higher or lower. The 2.5% – 6.5% IPCA range is targeted by the central bank when defining the interest rate, SELIC. The index is calculated by IBGE (federal geography and statistics institute) and tracks continuous and systematic variations in consumer prices for families with income up to 40 minimum wages. Data is collected in the metropolitan areas of Belém, Recife, Fortaleza, Salvador, Belo Horizonte, Rio de Janeiro, São Paulo, Curitiba, Porto Alegre, Brasilia and Goiânia. Data is collected between the first and last day of the reference month, and is disclosed between the 8th and the 12th of the following month.

 IGP-M (Índice Geral de Preços do Mercado) – General Index of Market Prices: Considered equivalent to the PPI – Producer Price Index, in the US. From Fundação Getúlio Vargas (a private entity), it was created to correct some treasury securities and floating-rate bank deposits with maturities over one year. Later, it started to be used for corrections of contracts such as real estate rent and electricity. Disclosed at the end of the reference month since the collection is made from the 21st of the previous month and the 20th of the month to which it relates. It consists of IPA – Wholesale Price Index (60%), IPC – Consumer Price Index (30%) and INCC – National Index of Construction Cost(10%). Every 10 days, it is disclosed a partial number known as IGP-10.

IPC – aka IPC-FIPE – (Índice de Preços ao Consumidor) CPI – Consumer Price Index: This is the inflation index for the city of São Paulo, largest city in Brazil. FIPE (a foundation linked to USP – University of São Paulo) measures the IPC based on a consumer with income between 1 and 20 minimum wages. The basket of products and services tracked is based on the POF – Household Budget Survey from IBGE, constantly updated. The survey is conducted between the first and last day of the reference month and published between the 10th and 20th of the following month. It is the most traditional cost of living indicator for the families in São Paulo and one of the oldest in Brazil, since January 1939.

INCC-DI (Índice Nacional de Custo de Construção, Disponibilidade Interna) – National Index of Construction Cost, Internal Availability: From Fundação Getúlio Vargas (private entity) in partnership with Caixa Economica Federal (public company), measures the cost of new housing in 18 cities: Aracaju, Belem, Belo Horizonte, Brasilia, Campo Grande, Curitiba, Florianópolis, Fortaleza, Goiânia, João Pessoa, Maceio, Manaus, Porto Alegre, Recife, Rio de Janeiro, Salvador, Sao Paulo and Vitoria. This is one of three items that comprise the IGP – General Price Index, with 10% weight. It is measured between the first and last day of the month and released about 20 days later. There is another number (INCC-M), calculated between day 21 of the previous month and the 20th of the month in reference for the composition of the IGP-M.

Braskem: Largest Petrochemical in Latin America

Braskem is Brazil’s largest integrated petrochemical cracker and thermoplastics maker. The company produces a portfolio of petrochemical products including ethylene, propylene, butadiene, toluene, xylene, benzene, gasoline, diesel oil, liquefied petroleum gas (LPG), as well as thermoplastic resins, such as polyethylene (PE), polypropylene (PP) and polyvinyl chloride (PVC). As of December 31, 2011, the Company had 35 industrial units, including 28 in Brazil, five in the United States and two in Germany. Additionally, it is engaged in the import and export of chemicals, petrochemicals and fuels. The Company divides its activities into five sectors: Basic Petrochemicals, Polyolefins, Vinyls, International Businesses and Chemical Distribution. As of December 31, 2011, the Company had a number of subsidiaries in Brazil, the United States, Argentina, Chile, Netherlands, Germany, Cayman Islands, Mexico, the British Virgin Islands, Bahamas and Uruguay.

ADR Ticker BAK
Industry* Commodity Chemicals
Bovespa Ticker BRMK5
EBI Rating 3-star

Got MIlk? Got Meat? BR Foods has strong brands in the meat processing and dairy industry in Brazil

BR Foods owns three very strong brands in the food market in Brazil: Perdigão, Sadia and Batavo. With more than 55,000 employees, it is one the largest Brazilian processed food companies. Its international operations reach more than 140 countries. The firm sells over 3,000 products both domestically and abroad, with a focus on the sale of processed food products, poultry, pork, beef, and dairy products.

Sadia and Perdigão are in the processed meat industry and used to be the two major players in the market until they merged in 2008, creating Brazil Foods. Batavo is the leading brand in dairy products in Brazil.

In a scenario where the middle-class is growing quickly in Brazil, BR Foods is well positioned to take advantage of this growing demand.

Also, BR Foods brands should allow it to pass to the consumers the rising costs from agricultural commodities, thus providing a nice inflation hedge.

Below is the full list of products BR Foods sell in Brazil and abroad (click the images to enlarge):

BRFS Products Brazil
BRFS Products Export
Easy Brazil Investing Rating
Brasil Food’s competitive advantage is built on its brands, distribution network and scale. All these factors along with the exposure to fast-growing markets, grant BRFS the 5 star EBI Rating.

BRF-Brasil Foods S.A.

Industry* Food Products
Bovespa Ticker BRFS3
EBI Rating 5-star

Brazil-focused ETFs to invest directly from NYSE

If you want to get exposure to Brazil in a diversified manner, ETFs are the easiest way. If you have an account through which you can trade ETFs from the New York Stock Exchange (NYSE), you can invest in Brazil right away.

Here I will list six ETFs for you to get started. If you prefer investing on individual stocks, you may want to check these Brazilian Companies.

iShares MSCI Brazil ETF (EWZ)

This 13-year old ETF, introduced in July 14, 2000 has gathered more assets than any other non-US, single-country ETF. It currently has over $6 billion under management. iShares Brazil tries to replicate the MSCI Brazil index and as such, it is highly exposed to the Brazilian Large Caps: Petrobras, Vale, Ambev, Itau Unibanco and Bradesco.

Over the past 10 years, EWZ has risen almost 300%, while the S&P 500 is pretty much breaking even.

While these blue-chips do provide good scale and less volatility than it’s smaller counterparts, this ETF is highly exposed to commodities producers: Petrobras, Vale, OGX Petroleo, CSN and Gerdau. That obviously brings volatility. On the other hand, iShares Brazil gives long term investors a good inflation hedge as it will benefit from commodities prices spike. In a world where emerging markets keep growing, albeit slower, commodities prices tend to go up as basic needs such as food and energy are the first ones purchased by the emerging middle-class.

When you buy this fund, you are basically long the world’s low-middle-class.The one that buys its food, can afford its house, basic appliances and perhaps a car. They will not spend on fancy, expensive gadgets or on the dream holiday.

Well, if you are long that low-middle-class you should know they are growing fast. Countries like China, India and Brazil are growing between 5% and 10% and the ones getting the most advantage of this growth are the “new middle-class”. Recent growth deceleration in these countries present a good buying opportunity for the patient investor.

Global X Brazil Mid Cap ETF (BRAZ)

This fund is more recent and started trading June 2010. The investment seeks to provide investment results that correspond generally to the price and yield performance of the Selective Brazil Mid Cap index.

While the large caps in Brazil are highly tight to the world’s economy, these mid-cap companies are more targeted to the internal market.

Market Vectors Brazil Small-Cap ETF (BRF)

If you want to get even further exposed to Brazilian internal market, this fund is for you. The investment seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Market Vectors Brazil Small-Cap Index

This fund is older and has more assets than the mid-cap focused BRAZ. With $1.2 billion under management BRF’s liquidity is still not so high though. On top of that, some of its investments don’t have that much liquidity either.

If you want to get exposure to the domestic economy though, nothing is better than BRF.

EGS INDXX Brazil Infrastructure ETF (BRXX)

The fund seeks investment results that generally correspond (before fees and expenses) to the price and yield performance of the INDXX Brazil Infrastructure index.

With the World-cup and Olympics fast approaching, infrastructure investment will be priority in the next few years. But here again, BRXX’s low liquidity is a concern as well.

ProShares Ultra MSCI Brazil (UBR)

If you want to go all-in on Brazil, UBR is the ETF for you. The investment seeks daily investment results that correspond to twice (200%) the daily performance of the MSCI Brazil Index.

To achieve that, UBR uses leverage, which obviously increases its risk so be careful before investing in this one. It does provide a nice beta for your buck, though.

ProShares UltraShort MSCI Brazil (BZQ)

During some periods of time, you may feel you have too much exposure to Brazil or you just want to bet on a drop. BZQ seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the MSCI Brazil Index.

Again, use leveraged ETFs with care. If you believe in a continued meltdown of emerging markets, this ETF is a good candidate for you since its double downside exposure to the commodities-heavy MSCI Brazil gives you a good beta.

Investing in Bradesco: building on its presence

Bradesco is the third-largest bank in Brazil. Unlike in most developed countries where small banks and credit unions are always present, in Brazil, the bank industry has a well-established oligopoly, where the 4 major banks have around 70% of the market share together. This oligopoly along with the high switching-cost in the bank industry gives these 4 banks a good pricing advantage.

The bank industry in Brazil is also conservatively regulated and highly lucrative, with spreads north of 10%. These two factors reduce considerably the risk for small investors in these banks.

Bradesco has over $800 Billion in assets. Its main two segments are banking and insurance, with each contributing almost equally to the company’s bottom-line.

With 4600 branches throughout the country, Bradesco is the only of the major banks to be present in every city in Brazil. This strong presence will allow Bradesco to take advantage of Brazil’sgrowth over the next decades.

Easy Brazil Investing Rating

Bradesco’s competitive advantage is built on its presence, brand, scale, high switching-cost and the oligopoly in the industry. These factors along with the exposure to a fast-growing market, grant Bradesco the highest EBI Rating: 5 stars.

Banco Bradesco S.A.

ADR Ticker BBD
Bovespa Ticker BBDC3, BBDC4
Latibex Ticker XBBDC
Industry* Banks, Insurance
EBI Rating 5-star