Why I’m Investing in Brazil Over the Long Term
Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There are a lot of great companies in the United States. To ensure that my portfolio is truly diversified, though, I like to invest outside of our borders, and the country I’ll be targeting next is Brazil, for a variety of reasons that I’ll explore in this article. There are a number of ways one could get into the Brazilian market, such as investing in the country's largest companies Petrobras (NYSE: PBR) and Itau Unibaco (NYSE: ITUB). Or, if you want to ensure diversity in your portfolio you could consider the iShares MSCI Brazil Index EFT (NYSEMKT: EWZ).
Brazil has had some incredible growth in the past, and while that may be slowing down there are two big reasons why I think you should allocate some of your money to this huge economy. The 2014 FIFA World Cup and the 2016 Olympics will be held in the country, and I think that this will provide a massive influx of infrastructure development and tourism to the nation. Outside of those two events you’d be investing in a nation that has the sixth highest nominal GDP and a huge labor force.
With any investment there are always downsides. A major one with investing overseas is the changes in currency that may result in your investment heading south. Brazil has been experiencing some fairly high inflation as of late, and that inflation won’t reflect well on our investments either. If you want in on this Brazilian investment, then I’d recommend it be a long-term type deal.
Petrobras is a Brazilian multi-nation energy that is the largest company in the southern hemisphere and the tenth largest company in the world, according to Forbes. Petrobras has increased profits nine out of the last ten years. The only dip it took was a slight one in 2009. Sales have also continued to grow. The debt level is a tad high, which may push some people away, but all in all this company is in good standing. You’ll get a yield over 5% if you decide to risk your money here.
Itau Unibanco came to be after a merger of Banco Itaú and Unibanco in 2008. The merger made the newly formed bank the largest financial conglomerate in the southern hemisphere. This bank is ranked 30th in the Forbes Global list, and it is the tenth biggest bank in the world. P/E is below 10 at this bank and the yield is close to 4%, so it may be a wise bet for anyone wanting financial diversification away from U.S. banks. This bank has lots of assets and very little actual debt of their own. I’d recommend it!
If you, like me, feel that the upcoming events in Brazil may give the country a boost then you may want to try and diversify across the country with an ETF investment. There are a few ETFs that you may wish to take a look at. The iShares MSCI Brazil Index Fund tracks the MSCI Brazil Index and contains some of the country's biggest companies.
If you think that the upcoming events will need lots of infrastructure build out, which they will, then you might like the sounds of the EGS INDXX Infrastructure ETF (NYSEMKT: BRXX).
The infrastructure ETF has holdings in mall companies, telecom companies, and various builders. Vale (NYSE: VALE) is also included in the infrastructure fund. The company is the second-largest miner in the world. Exposure to Europe and China has resulted in some losses this year, but the company will no doubt be providing the iron required for the 2014 World Cup and 2016 Olympic games.
The ETF route may be the best way to play this investment. An ETF will grant you instant diversification across Brazil. It will make investing a lot easier in the nation, and the fees for these ETFs are relatively low.
Ash1402 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Petroleo Brasileiro S.A. (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!