Franklin FTSE Brazil ETF

FLBR

Market cap $548M

I am raising my recommendation on the Franklin FTSE Brazil ETF from hold to buy, citing strong forward drivers. Brazil's 2026 outperformance is driven by election optimism and the market's search for AI-resilient, commodity-sensitive economies. FLBR's valuation is undergoing multiple repricings, with potential upside if P/E multiples converge with emerging market peers.

The ongoing Iran war and Strait of Hormuz blockade have sharply disrupted global energy and fertilizer flows, with Brazil facing acute exposure. Brazil benefits from higher oil prices as a net exporter, but inflation and logistics costs are rising, pressuring domestic fuel and transport sectors.

Brazilian equities (EWZ, FLBR) face a nuanced bull case driven by foreign capital inflows and anticipated interest rate cuts from 15% to 10.5% by 2027. Despite a 53% BRL rally in the Ibovespa, local investors remain cautious due to persistent fiscal risks, political uncertainty, and low equity risk premiums.

Investors poured twice as much into emerging markets in January as in all of 2025, betting on a weaker dollar and hedging U.S. risk.

Franklin FTSE Brazil ETF remains attractively valued despite outperforming emerging markets by over 10 percentage points in 2025. FLBR targets mid- and large-cap Brazilian stocks, with an average market cap around $35 billion and a 0.19% management fee. Key performance drivers include strong gains in Brazilian banking stocks like ITUB and BBD, supporting FLBR's resilience.

FLBR hits a 52-week high as Brazil's stronger currency and equity rally fuel momentum for the Brazil-focused ETF.

Volatility & insurance led gains last week! ETFs VIXI, UNG, KIE, KBWP & FLBR outperformed as AI sell-off and shutdown fears rattled Wall Street.

FLBR, which offers cost-efficient access to 71 Brazilian stocks, is up by 22% since we last covered it, but a shift in stance may now be warranted. The Brazilian macroeconomic backdrop is looking quite unsteady with weak GDP trends, steep inflation, high interest rates, tariff pressure, and adverse loan growth appetite. FLBR's dividend yield has declined to around 5% (5-year average is 7.7%), with payout cuts of Brazilian enterprises and potential tax reforms threatening future distributions.

I recommend holding assets tracking major Brazilian indices despite new US tariffs, given heightened uncertainty and market volatility. Trump's 50% tariff on all Brazilian products will significantly impact Brazil's export-dependent economy, especially in commodities like oil and iron ore.

I recommend holding the Franklin FTSE Brazil ETF due to improved momentum but caution over potential political volatility. President Lula's declining approval and potential trial of former President Bolsonaro could cause market instability. Despite strong performance, Brazil's macroeconomic issues and political risks warrant a cautious approach.