Emerging market growth has been nothing short of spectacular, particularly the BRIC’s. Brazil, India, China are the strongest of the group, with Russia being the weakest.
Investment banks are particularly bullish on this sector, as noted by comments from Kate Moore, the global equity strategist at Bank of America Merrill Lynch. In a research report on infrastructure in emerging markets, she wrote, “They need to build out infrastructure to create stable growth. Cities with the best infrastructure will attract domestic and international business as well as human capital”.
Brazil is the country that is most likely seen as providing true economic numbers, as some of the Chinese government data is still not believed. The growth in Brazil continues to be nothing short of outstanding, and it should continue very strong for at least the next 6 years.
In the next 6 years, Brazil is hosting the World Cup in 2014 and the Olympics in 2016. To do this, the country needs to spend substantially on its infrastructure to handle the demands of travellers, guests, and the athletes.
To do this, investors have lots of options. You could look at specific companies, like mining giant Vale, or Gerdau S.A. Both of these companies will see significant increases in business as these two major events draw closer.
Companies like CPFL Energia and Cemig should also benefit, as these utilities continue to pump out electricity and power to feed the needs of the Brazilian population, in addition to the new structures being built.
However, with any single stock, investors have to look at the risks as well. In order to mitigate the risk, but still reap most of the reward, investors may want to look at the Brazil Infrastructure ETF.
This ETF tracks the INDXX Brazil Infrastructure Index, a benchmark made up of 30 companies that represent Brazil’s infrastructure sectors. I firmly believe that this ETF will outperform other Brazilian ETF’s, such as the iShares MSCI Brazil Index, as the country ramps up manufacturing in advance of the World Cup & Olympics.
Looking at a prospectus for the ETF, the funds top 10 holdings are:
* Centrais Eletricas Barasileiras (5.5%)
* Companhia de Concessoes Rodoviarias (5.5%)
* Vivo Participacoes (5.2%)
* Vale S.A. (5.1%)
* Gerdau S.A. (5.0%)
* Net Servicos de Communicacao (4.9%)
* Ultrapar Participacoes (4.7%)
* Wege S.A. (4.6%)
* Telemar Norte Leste (4.5%)
* Brasil Telecom (4.5%)
The expense ratio for the ETF is 0.85%, a little high, but this should be offset by the funds out performance.
Here is a link to the prospectus for the ETF.
The emerging market theme will continue to play out for the foreseeable future, and by adding shares of BRXX to your portfolio, investors can profit handsomely off the biggest infrastructure spending movement in the history of mankind.
— Roger Nachman
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