(Bloomberg) -- There’s at least one way to make money and bet on Brazilian equities at the same time, even if the Ibovespa is down more than 7 percent this year.
Just ask investors in the ProShares UltraShort MSCI Brazil, or BZQ. The fund is up 40 percent year-to-date and is nearing a 12-month high. It gives investors twice the inverse performance of underlying Brazilian equities -- that means the more shares sink, the better the payout for buyers.
Brazilian assets are struggling with political uncertainty surrounding the presidential election in October, a more bearish outlook for the country’s economy and the prospect of tighter monetary policy in the U.S.
Recently, lower-than-expected economic growth and a weaker Brazilian real added a cautious note for earnings. JPMorgan (NYSE:JPM), UBS and Santander (MC:SAN) all mentioned downside risks to Brazilian company results. The country’s benchmark Ibovespa index fell almost 11 percent in May, the biggest monthly drop since September 2014. In June, the equity index has already slumped 8 percent.
Mark Mobius, co-founder of Mobius Capital Partners, said that he’s "concerned" about the potential slackening of reform movement in Brazil and that the nation’s stocks "are not trading at bargain levels," suggesting they may have further to fall.
On June 8, investors traded over $11 million worth of BZQ, the most since May 2017 and more than 10 times the average daily turnover for the past year. Leveraged strategies are usually used by traders and reset their leverage daily to give new buyers the performance they anticipate, meaning the longer they’re held, the less accurately they track their benchmarks.
