Category Archives: Funds

Funds for investing in Brazil

Walmart to divest from Brazil: looking for partner

Walmart LogoAfter just over two decades in the Brazil, Walmart is negotiating the sale of part of its business in Brazil. The company has already started looking for a partner. But the model of the operation still depends on the proposals that are being presented to the retailer. At least four companies, including asset managers and private equity funds, are in talks with the company. They are: Advent, Catterton, Carlyle and General Atlantic.

The ongoing talks with private equity manager Advent International would involve the sale of 50% of the Brazilian subsidiary, newspaper “O Globo” reported yesterday. Both Advent and Walmart do not comment on the subject.

The US parent is taking direct care of the negotiations. Goldman Sachs has been advising the American group in the operation.

According to sources, there is a search for proposals for different options to structure this operation in the most convenient way for Walmart.

It is possible that the sale is of a minority slice or even the control of the two integrated operations (online and brick and mortar). Both options will be evaluated, according to a source. This is considered a sensitive trading, since it is not a practice for the American retailer to trade assets with investment firms. In the world, Walmart controls most of its business. In China, they have a minority partner.

When analyzing the parties interested, Catterton already has a retail operation in the country – it’s a partner in St Marche and Eataly. In the case of Carlyle, the fund also has retail operations in its portfolio – executive Hector Nuñez, president of RiHappy, was CEO of Walmart Brazil from 2006 to 2010.

Due to the complexity of the food retail business, and the results that the subsidiary has been presenting, industry executives think there is little room for a large number of interested parties.

Read More about Brazilian Retail Stocks

With 471 stores and ranking third among the largest food retailing groups in the country, Walmart did not grow in 2015 and 2016 when it achieved gross sales of R$ 29.4 billion (US$ 9 billion) – there is no data from last year. Until 2017, when it stopped detailing Brazil’s results in the world’s balance sheet, operating profits were alternated with losses in different quarters.

In the country, Walmart suffered in the past with errors in conducting the operation. There was too much interference from the headquarters, with mistaken decision making. The integration of networks bought in the country took years and the results were slow to appear. The integration process was finalized in 2016 and the subsidiary is currently running a R$ 1.5 billion plan to reform all supermarkets and hypermarkets in an attempt to breathe new life into the operation. This process is supposedly bringing some sales results to some stores.

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Brazilian CVM Vetoes Acquisition of Bitcoins by Local Investment Funds

Bitcoin Logo

The Brazilian Securities and Exchange Commission (CVM) has decided to not allow local investment funds to directly acquire bitcoins and other criptocurrencies by . On the other hand, the commission does not yet have a conclusion on investments in the modality through funds abroad, in places where the operation is already allowed.

The orientation from the Institutional Investor Relations Superintendency (SIN) is for the market to wait for a later and more conclusive report from the technical area, which should occur only in March.

The regulator’s guidance is in a statement released on Friday (12). The CVM recalls that Brazil and other countries have discussed the legal and economic nature of these investment modalities, without a final conclusion on the concept, especially in the “domestic market and regulation”.

“Thus, based on this uncertainty, the interpretation of this technical area is that the crypto-coins can not be qualified as financial assets … and for this reason, their direct acquisition by the regulated investment funds is not allowed”, says the document.

The CVM also received consultations on the possibility of setting up investment funds in Brazil with the objective of investing in other vehicles abroad that invest in cryptocurrencies. Or, to invest in derivatives created in regulated environments in other jurisdictions.

In the letter, CVM reminds that the existing discussions about the investment in crypto-currencies, either directly by the funds or in other ways, are still at a very incipient level. The document cites Bill 2.303 / 2015, which, if approved, may prevent, restrict or criminalize the negotiation of these investment modalities.

Brazil-focused ETFs to invest directly from NYSE

ETF LogoIf you want to get exposure to Brazil in a diversified manner, Brazil-focused 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 15-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 Olympics fast approaching, infrastructure investment will be priority in the next 12 months. 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.