Following last week’s survey of European-listed regional emerging markets ETFs, we turn our attention to country funds within this popular asset class.

While China and India are the emerging markets that have best captured investors’ attention, Brazil comes a strong third. With abundant natural resources, a young population of 190 million and a solid democracy, its prospects appear bright. The fact that it made it through the global crisis without IMF assistance has reassured investors that government finances are finally robust. There’s still much to do – business reforms and greater investment in infrastructure are crucial – but overall, it seems to deserve its image as one of the key economies of the 21^st century.

So what are the ETF choices? The iShares MSCI Brazil is the most popular with around €730 million in assets under management; this is a physically replicated (or “in specie”) product that pays quarterly dividends on a total expense ratio (TER) of 0.74%. There’s a db x-trackers product for the same index that’s swap-based and capitalises dividends; the TER is 0.65%. Bid/ask spreads for both have been around 0.5% for their main listing over the past year, according to Bloomberg data, which is pretty standard for emerging markets ETFs.

One common issue with emerging markets indices is that they’re heavy in sectors such as resources and financials since these are dominated by a few large firms, while areas such as consumer goods – which EM investors seem increasingly interested in – don’t feature much. Unsurprisingly, that’s what we see here.

Mining and materials, energy and financials each account for around 25% of the MSCI Brazil. Two companies – oil and gas major Petrobras and miner Vale – each make up around 20%. So while Brazil’s economy is less geared to commodities than many think – net commodity exports are around 3% of GDP – the stock market is still likely to be influenced by commodity profits.

Elsewhere, Lyxor’s Brazil ETF is based on the local Ibovespa benchmark, but the change of index makes little difference. The weightings shift a bit – mining and materials (32%), banks (21%) and energy (18%) – but the same three sectors still dominate. The fund is swap-based with a TER of 0.65%; since the Ibovespa is a total return index, it capitalises dividends.

The two remaining ETFs use 15-stock indices that weight investors almost exclusively in the same three sectors. The BBVA-Accion Latibex Brasil, listed in Spain, is an in specie fund with semi-annual dividends on a TER of 0.39%. The France-listed Easy ETF DJ Brazil 15 is swap-based and capitalises dividends on a TER of 0.65%; it has a higher-than-average dealing spread of around 2%.

Russia also gets a lot of attention from investors, but for different reasons. Governance certainly isn’t improving, its demographics are awful and the economy is heavily dependent on commodities. It’s mostly seen as a play on resource demand in the rest of the BRIC economies and on the prospects of strong commodity earnings fuelling domestic consumption. Optimists also hope some of this will be funnelled into investment that will make the economy less lopsided in the long run.

However, the Russia ETFs only really cover the first theme. The leader comes from Lyxor, which has around €500 million in assets in a DJ RusIndex Titans 10 tracker, listed in most markets but not the UK; the TER is 0.65% and it pays annual dividends. EasyETF also has a France-only capitalising ETF for the same index at the same cost, but it has a high average secondary market spread of 1.9%.

The RusIndex Titans index consists of 10 Russian stocks that have London-listed Global Depositary Receipts, with each stock capped at 15%. Energy accounts for around 75% of the basket, followed by mining and materials (20%) and banks (5%). Some firms are government-controlled (Gazprom, VTB Bank), while most others are operated by well-connected individuals. As the Yukos affair demonstrated, there is real political risk here; other shareholders are likely to suffer if an oligarch falls out of favour with the Kremlin.

The second most popular choice is the db x-trackers MSCI Russia, with around €100 million in assets. ComStage also has an ETF for this benchmark, which is swap-based and capitalises dividends, on the same TER of 0.6% but with a high secondary market dealing spread of 1.2%. Both funds use capped versions of the index, with the weighting of individual constituents limited to 25% and 30%, respectively, to stop Gazprom being overly dominant; the firm represents 27% of the MSCI Russia now but has been more than 45% in the past.

The result is still resource-heavy, although the weights come down a little. Around 60% is in energy and 20% in metals and mining; however, you also get about 10% in telecoms and small amounts in utilities and consumer goods.

It’s much the same with the Market Access DAXglobal Russia ETF. This operates a 10% cap, bringing energy down to around 50% and boosting other sectors commensurately. The fund is swap-based on a TER of 0.7% and capitalises dividends; again, the secondary market spread is higher than average, at 1.4%.

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