International Portfolio Diversification with ETFs, BDRs, and FIAs: Evidence for Brazilian Investors
DOI:
https://doi.org/10.14392/asaa.2025180306Keywords:
portfolio diversification, cointegration, ETF, BDR, FIAAbstract
Objective: To comparatively analyze the potential benefits of international diversification, in terms of risk-adjusted returns, through Exchange Traded Funds (ETFs), Brazilian Depositary Receipts (BDRs), and equity investment funds (FIAs) with foreign allocations from the perspective of Brazilian investors.
Method: Cointegration tests were conducted between the series of the logarithm of daily Ibovespa prices and the domestic asset classes with exposure to foreign markets under analysis. In addition, theoretical portfolios were created to analyze whether the inclusion of domestic assets with exposure to foreign markets could improve the risk-adjusted return of the portfolios.
Results: The results show that few assets maintain a stable long-term relationship with Ibovespa, suggesting advantages of international diversification for Brazilian investors. The improvement in risk-adjusted returns varies depending on the different asset classes, the scenario (with or without a risk-free rate), due to the diversification strategies and the cointegration test applied. Thus, investors who manage their portfolios more passively can improve their performance by adding ETFs and FIAs to their portfolios, and for those who prefer to select their assets individually, BDRs have proven to be an interesting option.
Contributions: The results contribute to the creation of investment strategies that aim for an efficient international portfolio, especially for individual investors, for whom transaction costs and other potential barriers could hinder the realization of the benefits of international diversification.
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