Brazil ETF Assets Triple to $22.8 Billion in Two Years, Driven by Fixed-Income Demand

Assets in Brazil's exchange-traded fund (ETF) market have swelled to approximately 116 billion reais ($22.8 billion), marking a near threefold increase over the past two years. The rapid growth is primarily fueled by investor appetite for tax-advantaged vehicles to access the country's high-yield debt markets.

Fixed-Income and Tax Advantages Fuel Boom

The driving force behind the surge is the popularity of fixed-income ETFs. According to data from Anbima, the Brazilian capital markets association, these products have attracted over 27 billion reais in new investments this year alone.

Investors are drawn to these ETFs for two key reasons: lower management fees compared to traditional mutual funds and a significant tax benefit. Specifically, they are exempt from a tax collection system, common for many other fixed-income funds, that requires investors to prepay income taxes twice a year.

Asset Managers Expand Offerings

Leading financial firms have expanded their ETF operations to meet the rising demand. The growth for some managers has been exponential:

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• BTG Pactual Asset Management has seen its ETF business grow from about 1 billion reais at the end of 2024 to over 20 billion reais.
• Investo, a firm backed by VanEck, reported its assets under management climbed from 1.7 billion reais to more than 11 billion reais in nearly two years.
• Itaú Asset Management is also among the firms actively expanding its ETF presence in the country.

A Broader Latin American Trend

The growth in ETF adoption is not confined to Brazil. In Colombia, ETF listings have increased by 24% over the past year, while Chile has seen a 37% rise in the same period. In Mexico, total ETF and exchange-traded product assets have climbed to $15.3 billion from $14.3 billion last year, according to data from ETFGI.

Ignacio Saralegui, head of portfolio solutions in Latin America at Vanguard, noted that large institutional investors in Mexico, such as the country's pension funds known as Afores, are using ETFs to gain international equity exposure, particularly to U.S. technology and artificial intelligence sectors. Nestor Fernandez, chief investment officer for Principal Afore, added that thematic and active ETFs are also contributing to the market's growth.