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Even if you only occasionally follow financial news, you will have heard of Brazil’s two largest companies – Petrobras and Vale. However, a strong investment case can be made for Brazil in general and gaining exposure through a Brazil ETF.

Strong demand and rising prices for minerals have resulted in tremendous runs for two of Brazil’s largest minerals companies. Petrobras (NYSE: PBR), up 2,022% in the past 5 years, recently made the world’s second-largest oil/gas discovery in 20 years. Vale do Rio Doce (NYSE: RIO), up 1,560% in the past 5 years, is the world’s biggest exporter of iron ore (see our post on Vale in Another Way to Track China’s Growth with ETFs).

But there is more to Brazil than oil, gas and iron ore. A recent article by Martin Spring lays out the case for investing in Brazil. Key points made by Spring include:

Abundant Natural Resources

• Brazil contains nearly a fifth of the world’s fresh water
• Carbon-free electricity generation and hydro-power already provides 80 per cent of Brazil’s electricity needs, and two big new dams are being built on the Amazon at a cost of $10 billion.
• Because it can produce alcohol fuel from sugarcane for prices competitive with petrol, Brazil has been dubbed “the Saudi-Arabia of ethanol.”

Strong economy and favorable investment climate

• Strong and sustainable economic growth rate of about 5%
• A foreign trade surplus of about $40 billion a year
• Large foreign reserves, a strong currency and a buoyant stock market
• Brazil attracted FDI (foreign direct investment in factories and business operations) of $37 billion in the most recent year
• World’s third biggest raiser of investment capital via equity issues after the US and China
• Its international bonds are expected to be granted investment-grade status within two years.

Political stability and emerging middle class

• A flourishing middle class of 20 million
• Political stability
• Strong job creation (5 million new jobs since 2000)
• Disciplined public finances and trade liberalization
• Low inflation and falling interest rates

A quick way to get diversifed exposure to Brazil is through an ETF. A well established Brazil ETF is the iShares MSCI Brazil Index Fund (EWZ). The $7.6 billion fund (as of 2.2.08) tracks the MSCI Brazil Index. Although nearly half of EWZ is in Petrobras and Vale, the MSCI Brazil Fund also provides exposure to several large banks and Brazil’s largest integrated steelmaker Companhia Siderurgica Nacional (NYSE: SID), up 4,400% in the past 5 years. Read more at the iShares website.

One of the unique advantages of ETFs is that you can get instant diversification with one trade. This is especially true for Global ETFs which offer the promise of quick geographic exposure.

State Streets’ SPDR® DJ Global Titans ETF (DGT) tracks the world’s 50 largest stocks by market capitalization. One watch out for those looking to diversify a Western-focused portfolio is the ETF’s concentration in U.S. and U.K. based companies (60% and 15% respectively as of 2.20.08). Read more at State Street’s website.

Barclay’s iShares S&P Global 100 Index ETF (IOO) tracks 100 companies with a market cap above $5 billion that have at least one international facility. Like Global Titans, the IOO approach results in heavy concentration in companies headquartered in the U.S. and U.K. (47% and 14% respectively as of 12.31.07). Read more at iShares website.

WisdomTree’s International Dividend Top 100 Index (DOO) takes a different approach on a couple of dimensions. First, it excludes U.S. based companies – the result is a portfolio without significant concentration in any one country. Second, WisdomTree weights the portfolio using dividend-yield, the ratio of a company’s annualized dividend to its stock price. One benefit of that approach is the portfolio’s overall dividend-yield – a generous 5.18% as of February 20, 2008. Read more at WisdomTree’s website.

We’ve only covered the tip of the iceberg when it comes to Global ETFs. To receive a copy of our upcoming in-depth report Global ETF Investing, please subscribe to our e-mail list.

CNBC reported this morning that holders of Auction Rate Preferred securities (see Nuveen’s ETFConnect.com for a good overview) were having problems getting their money out of their investments. In the investing world, the ability to get your money out of an investment is called liquidity.

Since ETFs are a way to invest, liquidity is an important consideration. Is ETF liquidity a major consideration? What determines ETF liquidity? To answer that question, you should understand what an ETF is and where ETF shares come from.

The vast majority of money in ETFs are in funds that track a major equity index (a group of stocks) by actually buying shares of the companies that are in the index. Most ETFs are open-ended, that means that there is no fixed number of shares. As money comes into an ETF, the market maker simply creates new shares and then invests the money into the shares of the companies that make up the index.

The same is true for when money flows out of an ETF – the market maker will sell the shares of the underlying companies and eliminate the appropriate number of ETF shares.

So the ability to put money in or take money out of an ETF, the ETF’s liquidity, is not determined by the number of ETF shares that are traded in any one day. Liquidity is a function of how easy it is for the market maker to buy or sell the ETF’s underlying securities.

ETFs that track the indices of the largest and most actively traded public companies will be the most liquid. Examples include State Street’s SPDR S&P 500 ETF (Amex: SPY) and Dow Diamonds (Amex: DIA), PowerShares’ QQQ (Amex: QQQQ), and Barclay’s iShares S&P 500 Index Fund (Amex: IVV).

ETFs that track indices of equities with lower trading volumes will be less liquid by definition. We’ll cover those ETFs as well as ETFs tied to other securities in ETF Academy: ETF Liquidity Part 2.

To learn more about the technical underpinnings and empirical evidence on ETF liquidity, we recommend an article by Salomon Smith Barney’s Kevin McNally “The Truths About ETF Liquidity and Pricing“.

Natural Gas ETFs are a good way to invest in the world’s ever growing demand for energy. Several flavors of natural gas ETFs are on the market to match almost every variation of risk appetite.

The United States Natural Gas ETF (Amex: UNG) was launched as a new way for investors and hedgers to manage their exposure to energy. UNG tracks in percentage terms the movements of natural gas prices.

See the UNG website for more information.

ETF Securities sponsors a Natural Gas ETF (LSE: NGAS.L) that is tied to an index of natural gas futures. The sub-index is an “excess return” index and the interest component combines to give a total return investment.

The security NGAS.L is a secured note that can be created or redeemed on demand (by market-makers). It trades on the Exchange just like an equity and its pricing and tracking operate similar to an Exchange Traded Fund.

See the ETFS website for more information.

First Trust Advisors offers the ISE-Revere Natural Gas ETF (NYSEArca: FCG) which tracks an index of 30 companies that derive a substantial portion of their revenues from the exploration and production of natural gas. Top holdings as of 2/14/08 include Delta Petroleum (Nasdaq: DPTR), Cabot Oil & Gas (NYSE: COG) and Petroleum Development Corporation (Nasdaq: PETD).

See the First Trust website for more information.

State Street offers a couple of more traditional ways to invest in a Natural Gas ETF. The SPDR® S&P® Oil & Gas Equipment & Services ETF (Amex: XES) tracks an index of oil and gas equipment and services companies.

Top holdings as of 2/14/08 included:

• Schlumberger Ltd. (NYSE: SLE)
• Transocean Inc New (NYSE: RIG)
• Halliburton Co (NYSE: HAL)
• National Oilwell Varco Inc (NYSE: NOV)
• Weatherford International (NYSE: WFT)

The SPDR® S&P® Oil & Gas Exploration & Production ETF (Amex: XOP) tracks and index of oil and gas exploration and production companies.

Top holdings as of 2/14/08 included:

• Exxon Mobil (NYSE: XOM)
• Chevron (NYSE: CVX)
• Conocophillips (NYSE: COP)
• Occidental (NYSE: OXY)
• Devon Energy (NYSE: DVN)

Learn more at State Street’s website.

Water ETFs were big news last year with articles in:

• Business Week: Water ETFs: A Rising Tide
• Investment Advisor : Water ETFs Make a Splash
• USA Today: Investors Fish for Profit in Clean Water

Launched in 2007, the Claymore S&P Global Water ETF (CGW) tracks the S&P Global Water Index.

The S&P Water Index tracks a portfolio of 50 global equity securities from developed markets of companies that are involved in water-related businesses. The Index is split about evenly between a group of water utilities & infrastructure companies and a group of water equipment & materials companies. Market caps range from small to large.

See Claymore’s website for more information.

PowerShares Capital Management offers two water ETFs. The $2 billion PowerShares Water Resources Portfolio (PHO) is based on the Palisades Water Index™. The Index seeks to identify a group of companies that focus on the provision of potable water, the treatment of water, and the technology and services that are directly related to water consumption.

The PowerShares Global Water Portfolio (PIO) is the global version of PHO and is based on the Palisades Global Water Index™. Over 70% of the index is outside of the U.S. with Japan, Italy, Canada, Austria and the UK as the top countries for international exposure.

Learn more at PowerShares’ website.

First Trust Advisors’ ISE Water ETF (FIW) tracks the ISE Water Index. The Index is comprised of the 36 largest (by market cap) companies in the potable and wastewater industry. The three largest holdings as of February 14, 2008 were Pentair (NYSE: PNR), Flowserve (NYSE: FLS) and Pall (NYSE: PLL).

Learn more at the First Trust website.

Interested in learning more about currency ETFs? Check out Rydex Investments CurrencyShares page.

The website includes links to weekly commentary and data analysis notes, an overview of the benefits and risks of currency investing and a simple four step process for getting started.

CurrencyShares offers currency ETFs on NYSEArca for:

• Australian Dollar (FXA)
• British Pound Sterling (FXB)
• Canadian Dollar (FXC)
• Euro (FXE)
• Japanese Yen (FXY)
• Mexican Peso(FXM)
• Swedish Krona (FXS)
• Swiss Franc (FXF)

The CurrencyShares product is different from an ETN structure in that it is set up as a grantor trust which means that CurrencyShares represent an undivided interest in currency held in a bank account. ETNs are effectively unsecured promissory notes.

Investors makes money when the value of the currency held by the Trust appreciates relative to the U.S. dollar. It works the other way too. If the currency held depreciates relative to the dollar, investors lose money. Altough earning income and paying interest is not an investment objective of the CurrencyShares Trusts, some do distribute interest.

If you have an interest in the tax implications of investing in currency ETNs and the CurrencyShares Trusts, see Rydex’s note on the recent IRS Ruling 2008-1.

Investors looking for energy ETF alternatives have several choices.

Start with Van Eck Global’s Market Vectors Global Alternative Energy ETF (GEX). GEX tracks the Ardour Global Index(sm) which provides targeted exposure to 30 companies worldwide that are engaged in the alternative energy industry.

State Street offers three options in the SPDR Sectors. The Energy Select Sector SPDR® Fund (XLE) tracks the Energy Select Sector Index which is a composite of the energy sector of the S&P 500 (R) Index. The Energy Select Sector Index includes companies from the oil, gas & consumable fuels and energy equipment & services industries.

Other energy ETFs include the SPDR S&P Oil & Gas Equipment & Services ETF (XES) and SPDR S&P Oil & Gas Exploration & Production ETF (XOP). Both ETFs track indices that represent sub-industry portions of the S&P Total Market Index.

The S&P TMI tracks all the U.S. common stocks listed on the NYSE, American Stock Exchange, NASDAQ National Market and the NASDAQ Small Cap exchanges. TMI is an equal weighted market cap index.

Vanguard’s Energy ETF (VDE) tracks the performance of the Morgan Stanley Capital International® (MSCI®) US Investable Market Energy Index. The index is made up of large, medium, and small U.S. companies whose businesses are dominated by either energy-related service and equipment or companies engaged in the exploration, production, marketing, refining, and/or transportation of oil and gas products.

Visit the sponsors’ websites for more information:

• Van Eck Global
• State Street
• Vanguard

In the market for high dividend ETFs?

Several ETF sponsors have dividend paying exchange-traded funds with different approaches to choose from.

Claymore offers the Claymore/Zacks Dividend Rotation ETF (Amex: IRO). The concept behind the rotation strategy is to maximize dividend income that qualifies for taxation at the lowest current tax rates. The index is split into two approximately equal sub-indices rebalanced every two months in an effort to include only securities that are expected to pay a dividend in the following two months.

First Trust has two ETFs focused on dividends – First Trust Morningstar Dividend Leaders Index Fund (Amex: FDL) and First Trust Value Line Dividend Index Fund (Amex: FVD). The Morningstar fund replicates an index that applies a proprietary multi-step screening process to identify a universe of 100 stocks based on dividend yield. The Value Line fund tracks an index that begins with stocks with a Value Line “safety ranking” of #1 or #2 and then selects those companies with a higher than average dividend yield and equity market capitalization of greater than $1 billion.

Powershares sponsors four dividend ETFs – PowerShares Dividend Achievers Portfolio (PFM), PowerShares High Growth Rate Dividend Achievers Portfolio (PHJ), PowerShares High Yield Equity Dividend Achievers Portfolio (PEY) and PowerShares International Dividend Achievers Portfolio (PID). The four funds track indices with varying strategy combinations of dividend yield, growth and consistency.

Learn more at the sponsors’ websites:

• Claymore
• First Trust
• Powershares

Agriculture produced the hottest stocks in 2007 and leading companies such as Potash and Mosaic have held on to their gains so far in 2008.

Investors interested in agriculture ETFs have several options to choose from. Our favorite ticker symbol in the group is associated with Van Eck Global’s Market Vectors Agribusiness ETF (MOO). With over $1 billion under management, MOO tracks the total return performance of the DAXglobal® Agribusiness Index. The Index provides targeted exposure to 40 companies worldwide that are engaged in the agriculture business. The top 5 constituents as of Feburary 7 were Mosaic (NYSE: PBO), Potash (NYSE: POC), Monsanto (NYSE: MON), Archer-Daniels-Midland (NYSE: ADM) and Deere (NYSE: DCO).

The Powershares DB Agriculture Fund (DBA) takes a different approach using a rules-based index composed of futures contracts on some of the most liquid and widely traded agricultural commodities – corn, wheat, soy beans and sugar (the Deutsche Bank Liquid Commodity Index – Optimum Yield Agriculture Excess Return™ Index.)

You can also go to the London Stock Exchange and check out ETF Securities’ Agriculture ETF (LSE: AIGA.L) which is designed to track the DJ-AIG Agriculture Sub-Index. AIGA tracks a commodity index rather than a portfolio of equities and is able to short. However, there’s no getting away from the dollar which is AIGA’s base currency.

Learn more at the sponsors’ websites:

• Market Vectors Agriculture ETF
• Powershares DB Agriculture Fund
• ETFS Agriculture DJ-AIGCI^SM

We are also preparing a special report on Investing in Agriculture with ETFs. To receive the report, please subscribe to our e-mail list.

In the March issue of SmartMoney magazine, Anojja Shah writes about an alternative way to play China for investors who like growth but are wary of the run-up in Chinese stocks. Shah suggests looking at companies and countries that export to China.

According to ChinaView.cn, Chinese imports grew 20% in 2007 to $950 billion. What are the Chinese buying? According to a government agency, China’s biggest import category was integrated circuits at $128 billion, up 32% in 2007. Key chip exporters to China included Taiwan, Korea and the Phillipines.

China also had a large appetite for oil in 2007, up 20% to $80 billion (Saudia Arabia, Angola and Iran). Other large import categories included plastics, up 20% to $32 billion (Taiwan, Korea and Japan) and iron ore, up 62% to $34 billion (Australia, Brazil, India).

Get exposure to Korea through the iShares MSCI South Korea Index (EWY) and to Taiwan through iShares MSCI Taiwan (EWT). Look into the CIMB FTSE ASEAN 40 (Code M62 on the Singapore exchange) for exposure to the 40 top stocks in the ASEAN countries (Indonesia, Malaysia, Philippines, Singapore, and Thailand).

Check out Van Eck Global’s Market Vectors Steel (SLX) for exposure to global iron ore miners such as Rio Tinto and Vale do Rio Doce.