Brazil Property – Fortaleza

The Place

What to do in a place like this – You can swim, surf, dive, sail, golf, play ball, ride, explore, bargain hunt, sight see, explore, drive a dune buggy for 100 miles in any direction, or take a jeep up a steep mountain trail. You can explore environmental preserves, or just swing in a hammock and do nothing at all.

Beaches: there are hundreds of miles of untouched pristine beaches. Ocean surface temperatures are 82 F all year round with 65 feet of visibility underwater.

Tourism: a 270% increase in tourism over the last eight years this is expected to increase to nearly double the current number of foreign visitors to the area by 2008

Climate: Guaranteed good weather at least 90 percent of the time with more than 335 days per year of glorious sunshine.

Low Crime: Fortaleza, Brazil’s fifth largest city, ranks 23rd in crime. Brazil is considered low risk in respect of war, terrorism SARs. You are probably more at risk where you are
right now.

Fortaleza food: Fresh fish is famous in this northeast region of Brazil.

Brazil-The people

Friendly people: all sizes, shapes, and colours, warm, friendly and welcoming that’s the Brazilian people. More about Brazilian people at Hip Brazil.com

Brazilian property-Fortaleza property investment

Property Prices: A 250 square meter house with three bedrooms and a swimming pool, about 100 meters from a beautiful beach only £27,000 approximate $ 47,000 USD.

Brazilian Investors welcome: Foreign Investment encouraged your own 100% of land and property; foreigners can open a bank accounts with attractive interest rates on investments

Easy buying process: Purchasing property is simple and straightforward for non-Brazilians and the right of freehold is incontrovertible. Title insurance is available and the legal process is inexpensive and relatively quick.

In October 2003, Goldman Sacks published a research paper titled, “Dreaming with BRICs: the Path to 2050.” The paper states that Brazil, Russia, India and China, commonly referred to as BRIC, may rank among the world’s most dominant economies by mid century. By 2041, China’s Gross Domestic Product (GDP) could possibly be greater that the United States and larger than everyone else except Japan by 2016. The BRIC economies together might be larger than the G6 (US, Japan, UK, Germany, France and Italy) by 2039. Obviously, there are execution risks, but the trends are in place for this to occur.

This has enormous implications. As these countries develop, just think of how their people will benefit and the opportunities that will be created. Demand for items that developed countries middle-class have come to expect will be tremendous. Consumer items such IPODs and DVD players will be of interest, but that will pale in comparison to the demand for housing with indoor plumbing, electricity, basic appliances and cars. In Goldman Sachs follow-up report released in 2004, it states that between 2005 and 2015 over 800 million people in these countries will have crossed the annual income threshold of $3000. By 2025, approximately 200 million people in these economies will have annual incomes above $15,000.

So, how can we as investors benefit from the industrialization of BRIC? I would like to propose two approaches: direct and indirect investing into the emerging economies. Direct investing requires an in-depth knowledge of companies in complex and diverse countries. This is far too time-consuming for the average investor. A much simpler approach would be purchasing single-country exchange traded funds (ETFs). I realize this is a mouthful. Let’s start by defining exchange traded fund (ETF). It is a fund that tracks an index, but can be traded like a stock. Thus, it provides the diversification of a mutual fund, but is not hampered by trade cut-off times and early redemption fees. A single-country ETF is linked to a country’s index that reflects the value and composition of its specific stock market. ETFs of the BRIC countries include: Brazil (EWZ), Russia (TRF), India (IFN), and China (FXI). Their year to date performance (YTD), as of 6/30/2006, is 17.2%, 27.4%, 16.3% and 24.6% respectively. This produces an equally-weighted return of 21.8%. Trouncing the US Major indices returns of 4.0%, 1.8%, and -1.5% (DOW, S&P 500 and NASDAQ respectively).

The second approach, indirect investing, consists of investing in companies that supply materials and equipment that the BRICs will need to industrialize. Imagine the number of highways, bridges, railways, factories and skyscrapers that will need to be built. This is impossible without commodities such as iron and carbon that are combined to form steel. Modern society requires copper for electricity and information technology. Can you imagine how much cement and concrete will be consumed? The demand created for these and other commodities will be phenomenal.

To leverage this approach I have created a basket of 12 stocks. It contains proven industry leaders that produce or supply to companies that extract base metals from the earth. Base metals include Copper, Aluminum, Nickel (stainless steel and nickel metal hydride batteries), Zinc (anti-corrosive coating in galvanized steel) and Lead (lead-acid car batteries). Companies that mine base metals include: diversified producers – BHP Billiton (BHP), Falconbridge (FAL), Rio Tinto (RTP); aluminum producer Alcan (AL); copper producers – Freeport-McMoran (FCX), Southern Copper (PCU), Phelps Dodge (PD); nickel producer Inco (N); iron ore producer – Companhia Vale Do Rio Doce (RIO). The suppliers of equipment, parts and services to these companies will profit as well. Thus, I have included two heavy equipment manufacturers in the portfolio: Caterpillar (CAT) and Bucyrus International (BUCY). The final company is not a base metal producer or supplier, but countless tons of cement and concrete will be necessary for the build-out. Therefore, I have included cement and concrete producer – Cemex (CX) in the basket. This indirect approach, using an equally weighted portfolio of the above listed stocks, has outperformed the direct approach 27.2% vs. 21.8% year to date.

In closing, I would like to share a couple of implementation details with you. The above portfolios are intended to be traded as a basket meaning that all should be bought and sold at the same time. Cherry-picking a couple of stocks may not produce better results – the diversification reduces company or country specific risk. It is also important to choose the right brokerage to employ this strategy. I have found that FolioFn lends itself well to this strategy. It enables complete automation of the process by supporting single-order basket trading as well as automatic dollar cost averaging. I highly recommend combining this strategy with dollar cost averaging. For more information on the benefits of dollar cost averaging, refer to my article on “Double Digit Gains with Dollar Averaging.” Commissions on a large basket can be cost prohibitive. Foliofn address that with its various commission plans including one that allows up to 600 window trades per month for $30. Consequently, fees on accounts of $40K would be less than 1% per year using this plan. This puts fees of basket trading in-line with fees of ETF and much better than mutual funds.

There is a tremendous opportunity to make money investing in the BRIC thesis. What are you waiting for?

Reference:

“Dreaming with BRICs: the Path to 2050.”

This week WisdomTree launched a series of currency ETFs.  I can’t ever pass up the opportunity to research a new security.  Especially one focused on international currencies.  One of these ETFs is pegged to the Brazilian currency, also called the Real.

A few years ago Brazil rocketed to the top of investors’ focus list.  They received great notoriety by being part of a 4 country group nicknamed the “Bricks” or BRICs.  The BRIC countries are Brazil, Russia, India, and China.  Together, within the next 30 years, they’re expected to have a combined economy larger than the US and Japan.

With all of the excitement many investors are, again looking to Brazil. Personally, I think it’s a great place to make long term investments.  I have five reasons why I like Brazil as an investment, and I’ve identified a few ways to profit.   First, what I like about Brazil (then the investment ideas).

To start the list off, Warren Buffett loves Brazil.  What more do I need to say.  Warren’s quoted as saying “It’s quite likely that if you had told me 10 years ago that I would buy the Brazilian real, I would have thought you were crazy.”

Buffett’s a big believer in the continued decline of the US Dollar.  As a result, he is looking to make investments overseas.  He’s looking at companies generating earnings in foreign currencies.

Second, the Brazilian Real is taking off.  Over the last five years the currency has doubled in value against the US Dollar.  Investments in Brazil have seen a huge benefit from this valuation shift.  Of course, driving this valuation trend in the currency is a strong Brazilian economy.

Speaking of the Brazilian economy.

Brazil is well situated when it comes to global trade.  This is reason number three that I like the investment opportunities in Brazil.  Because the economy is closely tied to international exports I’d expect it to continue to expand for some time.  Their biggest exports are resource-related products including iron ore and oil.

Oil’s important but ethanol’s more important for Brazil right now.  The energy infrastructure of Brazil gives the country a leg-up globally.  A significant portion of their economy is based on ethanol as a fuel source. Brazil is able to make the stuff by the barrelful.  Ethanol in Brazil is made from sugar cane that grows easily in their geographic region.  This insulates the entire country from major economic shocks – like the rising price of oil.

The fifth and final reason I like Brazil is the recent boost in their credit rating.  S&P recently upgraded the entire country’s credit rating to “investment grade.”  The upgrade in rating was caused by – as S&P put it – easing debt burdens and improving growth prospects.

Why do we care?

Because the improved ratings open up the country to greater outside investment.  The increased investment will drive even more economic growth in the country.

Those are all great reasons to invest in Brazil, so how do we invest profitably?

There are almost 30 Brazilian companies traded as ADRs on the New York Stock Exchange.  Two of the largest are Vale (RIO) and Petrobras (PZE).  After looking at some of these investment options I decided to take the easy way out.

Yes, you know where I’m going with this.

There’s two ETFs that own a baskets of the largest Brazilian stocks.  I’d look into iShares MSCI Brazil Index (EWZ) and HOLDRs TeleBras (TBH).  Both offer great exposure to Brazilian companies that would otherwise be difficult to buy.  As always, perform your due diligence.  After some analysis, I’m sure you’ll like what you see!