Brazil's ETF boom: retail nears 1 million as bond funds take the lead

Retail is waking up to ETFs

ETFs are getting popular fast in Brazil. B3 counts 914,000 retail investors in August, a 39% climb from a year earlier. Product shelves are fuller too, with ETF offerings up 55% to 219 over the same stretch.

A B3 chart also shows the retail ETF segment grew 25% in the year through August. "ETFs have passed an inflection point in terms of growth in Brazil," said B3's Felipe Paiva, who leads client relations and retail investment strategy. He added, "We're getting close to the 1 million mark for people who have ETFs in their portfolios, and for us, that's a very significant number."

What is actually trading

One ticker still sets the pace. BlackRock's BOVA11, which mirrors the stocks in Brazil's Ibovespa, was the top-traded ETF in August. It averaged 671.6 million reais in daily turnover, equal to $131 million, and represented 41.5% of all ETF trading. Despite growing retail activity, institutions accounted for 52.5% of August ETF turnover, while foreigners made up 28.8% and individuals 14.9%, B3 reported.

Why fixed income is stealing the show

With interest rates staying in the double digits, investors have favored bond ETFs over the past year and pulled back from riskier bets like equities, pushing stock exposure among retail investors to historically low levels. Anbima reports fixed-income ETFs have brought in more than 27.3 billion reais so far in 2024 and have now surpassed variable-income ETFs when you look at total assets. Fees are typically lower on these bond funds, and unlike many traditional fixed-income funds, they are not part of the regime where investors have to pay income tax in two advance installments each year.

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What this means for your money

Paiva sums up the moment: "People are starting to understand that these products exist, while on the supply side, banks, brokerages and financial advisers are increasingly including ETFs as an allocation option in investment portfolios." Translation for regular investors: Brazil's menu of ETFs is bigger, more people are using it, and high rates have tilted demand toward bond funds. If you care about fees, taxes, and liquidity, that mix explains why fixed income is leading right now while BOVA11 still commands the trading spotlight.

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