Emerging Markets, Funds / ETFs

From Bad To Worse: Brazilian ETFs Begin To Close

By James Eugene

Brazil cracked flagWith the Brazilian economy already in turmoil – including economic stagnation, social unrest and record disapproval rates for the incumbent President Dilma Rousseff – the Latin American giant is about to be dealt another blow: the liquidation of two ETFs: The Global X Brazil Financials ETF (BRAF) and The EGShares Brazil Infrastructure ETF (BRXX).

There is no denying the it has been hard to convince investors to purchase Latin American ETFs over the past few months, let alone Brazilian ETFs, due to constant underperformance, commodity price falls and fears over China. Following the trend of the MSCI Brazil Index, both the BRAF and BRXX have declined up to 75% over a 5 year period, with some of the worst declines occurring over the past year.

The Brazilian ETFs have shed up to 75% of their values in the past five years

The Brazilian ETFs have shed up to 75% of their values in the past five years

Global X Brazil Financials ETF

Global X, a major player in the ETF industry, announced a few weeks ago that it will be liquidating four ETFs with the BRAF being among the four. The BRAF was designed to track the performance of the financial sector in Brazil which has failed to live up to expectations of many investors, culminating in massive sell-offs and outflows of cash.

This ETF in particular was never a solid performer over a five year period. It only managed to accumulate $930k in assets (as of 29/09/15) and has lost 71% of its value during the same period, as well as being 41% down since the start of the year and 57% lower than 12 months ago.

Trading will cease on October 8th 2015 and the fund will officially liquidate around October 22nd 2015.

EGShares Brazil Infrastructure ETF

EGShares have decided to close the BRXX ETF (along with another ETF) in order to “streamline their offering”. This ETF only managed to gain $8.7 million in assets and with the ongoing problems in emerging markets at the moment, things were only going to get worse for the fund.

The BRXX ETF mainly focused on utilities, which comprised of a hefty 58.92% of the fund, with alternative and conventional electricity representing 25.65% and 21.62% of the fund respectively.

Trading will cease on October 30th 2015.

Will Any Other Brazilian ETFs Face Liquidation?

Perhaps. Although it isn’t wise to give a “yes” or “no” answer, there are many indicators that more ETFs will close that include Brazil (such as Emerging Market ETFs and Latin American ETFs) rather than those that ate 100% dedicated to the country.

Out of the 84 ETFs that have closed so far in 2015 (information courtesy of ETF.com), around 17 are related to emerging markets, equating to just over 20% of the total funds this year. With things looking even more bleak for those classified as an emerging market, we could probably expect to see a few more closures before the end of the year.

About James Eugene

Interested in many (maybe too many) things. Football, Politics and Emerging & Frontier Markets, to name a few. Twitter: @James_Eugene

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