Buy Market Vectors Brazil Small-Cap (BRF)

02/01/2010 1:56 pm EST


Jim Jubak

Founder and Editor,

I sold Market Vectors Brazil Small-Cap ETF (BRF) out of Jubak’s Picks about 9% ago back on December 9, 2009, and now I think it’s time to re-buy.

Well, actually I think Friday was a time to re-buy—before a recommendation from Goldman Sachs to buy the Brazilian real sent the Brazilian stock market flying.

But the ETF is still down 9% from my sell and off almost 14% from its January 4, 2010 high, so despite today’s rally I’m going to pull the trigger. (Readers have more flexibility than I do on buying. You should certainly consider buying a half position today and adding to it on any volatility.)  For more on how Brazil might be diverging from China’s ongoing correction see my post    

At this stage in the global economic recovery, I prefer a domestic small-company portfolio like that of this ETF to the export-oriented big company portfolio of iShares MSCI Brazil Index (EWZ).

This fund targets medium size and small companies that get at least 50% of their revenue from the domestic Brazilian market. (Average market capitalization of the fund’s holdings is $1.7 billion, according to Morningstar. Average market cap at iShares MSCI Brazil is $36.2 billion.) As a result about 40% of the fund is invested in shares of consumer discretionary and consumer staples companies that sell to Brazilians. (You can find more on the Market Vectors Brazil ETF on its web page )

Right now with this buy you get a chunk of the Brazilian economy, which is projected to grow by 5% or better in 2010, and exposure to the real, which after an 8% slide in January, looks likely to rally in 2010 as the Brazilian central bank starts to raise interest rates to head off inflation. (Yes, higher rates will slow the economy but I think that’s baked into the forecast.)

I’m adding these shares to Jubak’s Picks with a target price of $54.50 by October 2010.

Full disclosure: I will buy shares of this ETF for my personal portfolio three days after this is posted.
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