Brazil: An Update On Investing In Brazilian Exchange Traded Funds

Last Updated: 12 May 2011
Article by Walter Stuber

Brazilian Exchange Traded Funds (ETFs) are equity investment funds structured as open-ended funds that track indices traded on the Brazilian Exchange (BM&FBOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros - BVMF). The incorporation, administration and operation of ETFs is governed by CVM Instruction No. 359, of January 22, 2002, issued by the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários - CVM). The Portuguese expression used in Brazil to designate ETFs is Fundos de Investimento em Índice de Mercado (Market Indices Funds) or Fundos de Índice (Indices Funds).

The shares of an ETF are known as quotas (units). The units of the ETFs are traded on the BVMF just like shares1. When acquiring units in an ETF, the investor holds the entire range of shares in the linked or reference index (the Underlying Index) without having to buy separate shares in each company. In this manner, ETFs offer greater practicality, speed and flexibility when making an investment, as well as offering an easier tracking of performance, which is tied to the index in question. As with stock investments, in order to invest in an ETF the investor must go through a brokerage house that is authorized by BVMF2.

The reasons for investing in ETFs instead of buying shares directly are the following:

  1. fast and efficient investment in the Brazilian securities market: ETFs permit direct investment in several of the main Brazilian publicly-held corporations. The fund manager shall occasionally rebalance the portfolio in order to reflect changes to the composition of the Underlying Index, without any additional action or investment required by the ETF unitholders;
  2. investment diversification: ETFs grant their holders a means to diversified investment in the Brazilian securities market, as their Underlying Index is made up of shares from a wide range of Brazilian publicly-held corporations involved in different sectors of the economy;
  3. low administration cost: ETFs are a unique investment vehicle with a low administration cost. Their purpose is to track the performance of the Underlying Index, but without the operating costs, significant initial cash investment or constant adjustment responsibilities that would be required if investors wished to reproduce the performance of the Underlying Index individually.
  4. traded on BVMF as thought they were shares: ETFs are approved for listing and trading on BVMF and can be bought or sold in the same manner as any share traded on the Brazilian Exchange. As securities listed on BVMF, ETFs offer benefits that are not available to investors in unlisted investment funds. For example, investors can use ETFs as margin in transactions executed on BVMF in the same manner as other securities listed on the Brazilian Exchange. Furthermore, CVM and BVMF rules permit ETFs to be lent in market transactions. ETFs are traded on the spot, forward and options markets like shares. Only brokerage house clients can buy and sell units of ETFs. The same types of orders used for shares are used in ETF trading. ETFs are listed on the Brazilian Exchange and can be traded during the session. It is very easy for the investor to buy and sell them.

The minimum trading quantity for ETFs on the secondary market is a round lot, generally of 10 ETF units. Round lots can be traded singly or in multiples. The value in Brazilian currency (BRL) depends on the ETF, but anyone can begin investment at under BRL 200. Odd lot trading is also permitted, at a minimum of one unit. Any issue or redemption of ETF units should be in accordance with the minimum volumes established in the rules of each Index Fund.

The ETFs reflect changes to the portfolio of the Underlying Index. When the portfolio of the Underlying Index undergoes quarterly readjustments the manager shall accordingly readjust the composition of the ETF portfolio in order to reflect the new makeup. The manager shall also readjust the composition of the portfolio to reflect changes stemming from the distribution of proceeds by issuers in the Underlying Index.

The ETFs have sources of revenue. Revenue can be gained through lending ETF units and the individual shares that make up the portfolio, in accordance with the fund's rules.

Regarding permitted expenses, ETFs can only incur in the expenses covered by their rules. These include the administration fee, the annual contribution to BVMF, fees and commissions relative to the funds' transactions, expenses from the custody and settlement of the funds' transactions with securities, and fees and expenses from independent audits.

The cash redemption of ETFs is not permitted, but ETFs can be sold on BVMF like any other share. The redemption of ETFs is only permitted in units and must be in multiples of the Minimum Amount of ETF Units, specified in the rules of each ETF.

With respect to the fees applied for ownership or redemption of ETFs, the funds' rules of each ETF will establish whether or not there are fees for buying or redeeming ETFs.

ETFs can invest in assets other than shares in the Underlying Index, but always in accordance with the restrictions established in their rules. ETFs can put up to 5% of their equity into Permitted Investments, which are: (i) government securities issued by the National Treasury or by the Central Bank of Brazil (Banco Central do Brasil - Bacen); (ii) fixed-income securities issued by financial institutions duly authorized to operate by Bacen; (iii) Financial Investment Fund (FIF) participations; (iv) repurchase agreement operations, executed in accordance with the rules of the Brazilian Monetary Council (Conselho Monetário Nacional - CMN); and (v) transactions with derivatives carried out on stock exchanges, mercantile and futures exchanges or on the over-the-counter (OTC) markets.

The ETF trading price is not always the same as the Indicative Optimized Portfolio Value (IOPV). The reference price for ETFs may differ from the trading price on BVMF. The ETF trading price will be influenced by the reference price but also by supply and demand, which will vary based on market conditions and factors such as prospects for the shares that make up the ETF portfolio, investors' confidence, and expectations about the domestic and international economy. Meanwhile, mechanisms for the issue and redemption of ETFs help to keep the trading price similar to the reference price. It is to be expected that the investors will request the issue and redemption of ETFs whenever the trading price varies significantly from the reference price, but there is no guarantee that this will occur.

It is possible to redeem units of an ETF at any time, if the ETF holder has units that are multiples of the Ownership or Redemption Minimum Amounts.

To request the issue of new ETFs units, the investor will generally have to deliver the following to the fund manager, through the mediation of an Authorized Agent, the Minimum Purchase Amount (in accordance with the fund's rules) or a multiple of it, based on the fund's purchase basket of assets. The purchase basket of assets shall be have at least 95% of its value in shares in the Underlying Index and at most 5% of value in permitted investments or cash amounts

For redemption of ETF units, any holder may redeem ETF units on any trading day on BVMF, in Minimum Redemption Amounts or their round multiples. ETFs are redeemable through the fund manager delivering the following to the holder via an Authorized Agent, a portfolio of shares in the Underlying Index, or, as the case may be, a cash amount in accordance with the fund's rules.

Regarding the ETF policy about distributions of dividends and proceeds from the component shares of the Underlying Index, the calculation methodology for the Underlying Index assumes that any coupons, subscription receipts, share split certificates, dividends, interest on own capital, bonuses or other rights relative to shares in the theoretical portfolio of the Underlying Index shall be immediately reinvested in shares in the same index. This shall be to the same proportion as the composition of the theoretical portfolio of the Underlying Index, even if these distributions are not immediately paid or distributed. The fund manager shall as much as is possible use this methodology for the reinvestment of distributions paid, based on these shares composing the fund's portfolio.

The holders of ETF units can vote in the meetings of the companies whose shares make up the Underlying Index and they can borrow shares that are part of the theoretical portfolio of the Underlying Index and which are held by the fund, for the end of exercising voting rights in the general meetings of the respective companies. However, the number of units that the ETF unitholder can borrow shall be proportionate to the number of ETF units the holder has at the end of the day on which the request to borrow the shares is made.

In summary, the advantages of investing in ETFs are efficiency, transparency and flexibility in a single investment. ETFs are funds which mirror indexes and their units are traded on the Brazilian Exchange just like shares. When investors buy the units of any given ETF, they become holders of all the component shares of the Underlying Index which that ETF replicates without having to buy the shares of each company in the index separately. As a result, ETFs provide investors with a fast, efficient and practical investment opportunity which also facilitates their ability to closely follow the performance of their investment in the respective index. By investing in ETFs the investors are, at the same time, investing in a portfolio composed of different companies.

On May 5, 2011 BVMF announced the opening of the bidding process3 to select a securities portfolio manager entitled to an exclusive one-year license for the use of three new Underlying Indices: (i) the Dividend Index (IDIV), which measures the performance of shares in companies that are outstanding in terms of remuneration to investors, in dividends and interest on own capital; (ii) the Basic Materials Index (IMAT), which measures the performance of shares that most represent the packaging, wood and paper, miscellaneous materials, mining, chemicals, steel and metallurgy sectors; and (iii) the Public Utilities Index (UTIL), which measures the performance of shares in companies that represent the public utilities sector (electricity, water and sanitation, and gas). The component stocks are selected for their liquidity and weighted in the portfolio by the market value of stocks that are available for trading. Companies that issue Brazilian Depositary Receipts (BDRs) and companies in judicial reorganization or bankruptcy are not included in this universe. This is for the creation, respectively, of the Dividend Index Exchange-Traded Fund (IDIV ETF), the Basic Materials Index Exchange-Traded Fund (IMAT ETF), and the Public Utilities Index Exchange Traded Fund (UTIL ETF). The new products will have their units traded on the BOVESPA market segment.

The winning financial institution shall obtain the exclusive license for the use of these three new Underlying Indices to manage their respective ETFs for a period of one year. The only legal entities eligible to participate in the bidding process are those that have been authorized by CVM to perform professional securities portfolio management activities, and have or belong to an economic group that has, in Brazil and/or abroad, assets under management amounting to at least BRL 2 billion. The portfolio manager must also appoint the entity that will act as the investment fund manager, which will need to have assets under management amounting to at least BRL 10 billion.


1. According to the information announced by BVMF, ETFs reached a record BRL 942.43 billion financial volume in April of 2011, in 28,969 trades and 14,734,230 units. The financial volume figure surpassed by 7.5% the previous record of BRL 876.25 million, of February 2011. There was a 7.7% participation of individual investors in the total volume of ETFs in the same month of April. Institutional investors continued to lead, at 46.3%, followed by financial institutions (23.1%), foreign investors (21.8%) and public and private-sector companies (1.1%).

2. The parties involved in ETF transactions are the following: (i) the Stock Exchanges (in Brazil - BVMF) – which provides a platform for the listing, trading, settlement and custody of ETFs; (ii) fund portfolio managers – they are responsible for managing the fund´s portfolio and for replicating the performance of the underlying index; (iii) the fund managers – they are responsible for managing the fund and for creating/redeeming ETF units; (iv) authorized agents – the brokerage houses that create and redeem ETF units and maintain a direct relationship with the fund manager; (v) market makers – the brokerage houses that are continuously present in the market by providing bids and asks for at least a minimum lot of ETFs per bid/ask, subject to a certain maximum spread; and (vi) custodians – they ensure the safekeeping of ETFs and ETF component securities, as well as provide for the creation and redemption of ETF units.

3. VMF will receive documentation from the interested institutions up to June 13, 2011. The winning institution for each of the ETFs will be that which presents the greatest commitment of volume for the 12 months as of the date on which the units are admitted for trading, in the form of a proposal of minimum guaranteed exchange fees. This is defined as the sum total of trading, settlement and registration fees for cash, options and forward transactions involving IDIV ETF, IMAT ETF and UTIL ETF units carried out in the BOVESPA market segment. The announcement of the result of the bidding process shall be held in a session restricted to those participants that send proposals on June 28, 2011, as of 10.00 am at BVMF headquarters.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Walter Stuber
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions