Franklin Brazil ETF charges two-thirds less than EWZ, up 30%

The Franklin FTSE Brazil ETF (NYSEARCA:FLBR) has returned 17.65% year-to-date through July 13, outperforming the iShares MSCI Brazil ETF (NYSEARCA:EWZ) by roughly 5 percentage points while charging two-thirds less in fees.

"The fee gap alone creates a permanent headwind for EWZ holders, but the index construction differences have compounded the advantage this year," said David Beren, a financial writer covering ETFs at 24/7 Wall St.

FLBR charges 0.19% versus EWZ's 0.59%, a 40-basis-point annual gap that on a $10,000 position amounts to $40 a year in savings. Over the trailing 12 months, FLBR returned 37.61% against EWZ's 34.44%. The divergence stems partly from index methodology: FLBR's FTSE Brazil RIC Capped Index excludes Nu Holdings, which represents 9.18% of EWZ, while tilting heavier toward Vale at 11.39% versus EWZ's 9.94% weighting.

For buy-and-hold investors in tax-advantaged accounts, the swap from EWZ to FLBR is mechanical with no tax consequence. But taxable holders sitting on EWZ's 85.4% ten-year gain face a 15% to 20% capital gains tax that would take years of fee savings to recoup, making the decision contingent on individual cost basis.

FLBR's $541.67 million in assets under management is dwarfed by EWZ's $88.51 billion, a liquidity gap that matters for institutional block trades and options strategies. Retail-sized orders execute without friction in either fund, and for a long-term Brazil allocation, the liquidity premium is not worth 40 basis points annually, according to the analysis.

The dividend yield also favors FLBR. The fund's 5.84% yield reflects Brazil's high-payout corporate culture among banks, miners and utilities, net of a lower fee drag. EWZ's yield, while competitive, is reduced by the higher expense ratio.

Fee Advantage Compounds Over Time

The 40-basis-point gap compounds meaningfully over holding periods. On a $100,000 position held for 10 years, assuming a 10% annual return, the fee difference alone would cost an EWZ investor roughly $7,000 more than an FLBR investor, based on standard compounding calculations. That figure rises with larger positions and longer time horizons.

Tax Considerations Dictate the Decision

For IRA and 401(k) holders, the rotation executes as a single trade with zero tax implications. For taxable accounts, the math depends entirely on cost basis. Newer EWZ positions or those near breakeven clear the tax hurdle easily. Long-term holders with substantial embedded gains may need to weigh the fee savings against a one-time tax bill of 15% to 20% on appreciated value.

Both funds carry identical Brazil beta — currency risk, political risk and commodity cyclicality apply equally. Neither hedges the Brazilian real. The decision to switch rests on fee sensitivity, account type and individual tax circumstances rather than any fundamental difference in country exposure.

This article is for informational purposes only and does not constitute investment advice.