Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
Released
Income expert Carla Pasternak's debut issue of High-Yield
International covers a Taiwanese manufacturer yielding 9.5%... a
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investments yielding up to 19.0%.
Government's Biofuel Timetable Could Spell +15,900% Growth
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The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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| MSCI
Brazil iShares (EWZ) |
Published: June 28, 2004
The MSCI Brazil iShares (EWZ) is an exchange-traded fund that represents ownership in the Morgan Stanley Capital International (MSCI) index of Brazilian equities. Each of the companies in the top ten holdings trade in the United States, although not all share classes are available for trading on one of the major U.S. exchanges.
As is the case with many non-U.S. ETFs, the largest companies represent an extremely large proportion of the fund's overall capitalization. In the case of EWZ, the top ten holdings comprise nearly 2/3 of the value of the fund, led by two share classes of Pretroleo Brasileiro SA (commonly known as Petro Bras), the giant Brazilian energy company. In fact, the fund's 23.77% weighting in the energy sector is all accounted for by Petro Bras.
The next largest industry represented is Basic Materials, which represents more than 29% of EWZ. The largest stocks in this category include Companhia Vale do Rio Doce (RIO), which has two share classes represented in the fund and accounts for more than 16% of EWZ's value.
Brazil isn't all old-style manufacturing, materials and energy. Telecom offers a rather large 12.3% slice of the EWZ pie and Banks account for another 11.7%. Overall, however, the Brazilian stock market is far more manufacturing-oriented than the U.S. equity market, making it very cyclical in nature.
Although Brazil remains one of the safer plays in Latin America--its deep and liquid financial markets show less risk than other countries, many of which sport extremely heavy debt loads--the nation's stock market is still subject to periodic jitters, especially when other South American countries run afoul of their creditors.
The value of the Brazilian currency, the Real (pronounced ray-AL), after strengthening from about four per dollar in late 2002 to near 2.6 per dollar in mid-2003, now trades near 3.1 per dollar, a more than -20% depreciation in the past eight months. The currency traded as low as 1.6 during 2000. Remember, a weaker Real (strong U.S. dollar), all things being equal, will lower the dollar-translated returns for investors in EWZ.
If you hold a portfolio of primarily U.S. equities, then EWZ could provide you with an excellent dose of much-needed diversification. Unlike shares in the largest European countries, the correlation between the U.S. stock market and Brazil's market is relatively low--near 40%. However, the fund is far more volatile than the U.S. stock market, with an average daily trading range above 3% (the S&P 500 is near 2%). During a bull market, EWZ is likely to outperform the S&P 500. However, during a bear market the fund is likely to fall relative to the major U.S. indices.
| MSCI
Brazil iShares (EWZ) |
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| Type: |
Country
Fund |
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| Similar funds: |
MSCI
Mexico iShares (EWW) |
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MSCI
Taiwan iShares (EWT) |
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| Options?: |
Yes, illiquid |
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| Performance
Data |
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| 52-week High: |
$18.81 |
1/13/2004 |
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Annualized
return since: |
| 52-week Low: |
$9.87 |
8/4/2003 |
|
One-year |
39.11% |
| YTD Return: |
-14.76% |
(as
of 5/21/2004) |
Three-year |
2.51% |
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Five-year |
N/A |
| Dividends: |
$0.27 |
past 12-mos |
Life of fund* |
-3.79% |
| Expense: |
0.99% |
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*
- Started trading 7/14/2000 |
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| Correlation
Data* |
(1/02/02-5/28/04) |
Holdings*
** |
(as of
5/31/2004) |
| Dow
Jones Industrials |
40.2% |
|
Petro
Brasileiro Pfd |
12.81% |
| S&P 500 |
|
40.5% |
|
Petro
Brasileiro (PBR) |
10.96% |
| Nasdaq
Composite |
40.3% |
|
Companhia Vale
do Rio Doce Pdf Cl. A (RIO_p) |
9.76% |
| Nasdaq-100 |
|
39.2% |
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Companhia de
Bedidas das Americas Pfd |
6.86% |
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Companhia Vale
do Rio (RIO) |
6.64% |
| EWW |
|
43.8% |
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Banco Itau
Holding |
4.75% |
| EWT |
|
33.7% |
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Banco Bradesco
Pfd (BBD) |
4.27% |
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Tele Norte
Leste Participacoes |
3.42% |
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Empresa
Brasileira de Aeronautica Pdf |
3.25% |
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Aracruz
Celulose Pfd Cl B |
2.78% |
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* Percent top
ten are of total |
65.50% |
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**
Tickers only shown for share classes that trade in the U.S. |
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| Average
Daily Volume |
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Average
Daily Price Range |
| May-04 |
810,125 |
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Apr-04 |
4.2% |
| 2004 YTD |
979,672 |
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2004 YTD |
3.3% |
| 2003 |
306,953 |
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|
2003 |
2.7% |
| * -
Correlation measures how closely the two items track each other |
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*
Includes prior day's close (true range) |
HOW TO MAKE MONEY IN EWZ THIS YEAR
EWZ has fallen in three waves thus far from its early 2004 high (based on Elliott Wave Theory, which I use heavily in my analysis). A move above $15.00 would imply that substantial further gains are due (assuming it does not first fall below $12.13). I expect a drop below $12.13 first, with my main target near $11.75. After that, a decent rally is possible, which could take the fund back to $15.25. From there, my forecast calls for a much sharper drop, perhaps to sub-$10.00 levels.
What does this mean for investors and traders? Well,
long-term investors may want to short the fund at current levels, as
they should be able to make 10-15% fairly quickly. The Brazilian real
(currency) has rallied recently, but probably does not have a whole lot
more room to rally. That said, if you are short, place stops above
$15.00 as a move past there would imply that the fund could make a run
for its high ($18.80) instead.
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