Brazil’s ETF industry is entering a new stage of development. After years focused on introducing the basic concepts, the market is increasingly seeking deeper discussions about liquidity, taxation, portfolio composition, and the efficient implementation of investment strategies.
This transition marked the opening of Itaú Asset’s “Inside ETFs and Listed Funds” event. Eduardo Torrescassana, who opened the program, said demand for these products had become stronger and more active. According to Torrescassana, the conversation is no longer limited to education and now includes more specific applications of ETFs within portfolios.
During the first part of the program, Carolina Imai, an ETF specialist at Itaú Asset, presented the panel “ETFs: Simplicity That Works.” Caique Cardoso, also an ETF specialist at the asset manager, then led “Fixed Income 2.0: The Power of ETFs.”
ETF structure extends beyond exchange trading
Carolina Imai defined an ETF as an investment fund traded on an exchange that generally seeks to track a benchmark index. The structure combines diversification, transparency regarding portfolio composition, and the ability to buy or sell shares throughout the trading session.
The products can be used for long-term positions, tactical trades, portfolio hedging, and securities lending. Depending on the benchmark, a single transaction can provide exposure to dozens, hundreds, or thousands of assets. Fixed-income ETFs settle in T+1, while equity ETFs settle in T+2.
According to figures presented at the event, the global industry had more than US$23 trillion invested in ETFs, over 15,000 listed funds, and more than 500 asset managers operating in the segment. In Brazil, ETF assets had surpassed BRL 140 billion, with more than 200 products listed on B3 and over ten asset managers participating in the market.
One of the presentation’s main points was that ETF liquidity should not be evaluated solely through the daily trading volume visible on screen. Investors also need to consider the liquidity of the assets underlying the benchmark.
For a government-bond ETF, the trading capacity of LFTs, NTN-Bs, or fixed-rate securities affects the fund’s potential liquidity. In an Ibovespa ETF, the same reasoning applies to the stocks included in the index. An order larger than the volume normally visible on screen may therefore be executed when the underlying assets are sufficiently liquid.
Market makers play a central role in this process. In addition to posting bid and ask quotes, they can participate in the creation and redemption of ETF shares. When demand exceeds available inventory, new shares can be created using the corresponding basket of assets. When sell orders predominate, shares can be redeemed.
These movements make it possible to identify actual inflows and outflows. Net creation increases the number of outstanding shares and the fund’s assets, while net redemptions produce the opposite effect. Transactions between investors in the secondary market do not, by themselves, represent net inflows or outflows.
Carolina Imai also explained that the management team monitors the funds’ adherence to their benchmarks, trading spreads, market-maker activity, and portfolio rebalancing. The portfolio may also generate additional income through securities lending without changing its core index exposure.
Within the asset manager’s product range, BOVV11 was presented as an alternative for gaining exposure to the Ibovespa while generating additional revenue through securities lending. For dividend strategies, DIVO11 reinvests the income received from portfolio companies, while DIVD11 provides an income-distribution structure for shareholders.
Taxation and international structures affect net returns
Capital gains on equity ETFs are taxed at a rate of 15%. Unlike direct investment in stocks, there is no exemption for monthly sales below BRL 20,000. Losses may be offset against future gains within the same tax category.
When an ETF distributes dividends, a 15% withholding tax applies. In accumulation products, the income remains in the fund and is reinvested in the portfolio.
For fixed-income ETFs, taxation depends on the portfolio’s average repricing period:
- 25% for terms of up to 180 days;
- 20% for terms between 181 and 720 days;
- 15% for terms longer than 720 days.
The rate does not depend on how long each investor holds the ETF shares. Tax is withheld at source by the financial intermediary. ETFs are also not subject to Brazil’s semiannual advance tax mechanism, known as come-cotas, or to the Tax on Financial Operations, known as IOF. Coupons received by the portfolio can be reinvested within the fund without creating an intermediate tax event for the shareholder.
For international exposure, Carolina Imai presented the updated structure of SPXI11, an ETF that tracks the S&P 500 while retaining exposure to the US dollar. The product now replicates Vanguard’s VUAA, which is domiciled in Ireland under the UCITS regulatory framework.
The structure reduces withholding tax on dividends paid by US companies to the international vehicle from 30% to 15%. VUAA also reinvests dividends within its own portfolio instead of distributing them.
SPXR11 was presented as an alternative for investors seeking S&P 500 exposure without directly carrying fluctuations in the US dollar against the Brazilian real. The product uses currency hedging and incorporates the interest-rate differential between Brazil and the United States into the strategy.
Fixed-income ETFs defer taxation and increase transparency
During the second panel, Caique Cardoso presented ETFs as a new way to access risks already familiar to fixed-income investors. The underlying asset remains a government bond or a basket of bonds. The difference lies in the vehicle used to trade the securities, reinvest income, and manage taxation.
When investors purchase bonds directly, they follow a regressive income-tax schedule that starts at 22.5% and declines to 15% after 720 days. Coupon payments may also create tax events before the position reaches maturity.
For ETFs classified under the 15% rate, investors do not need to wait two years to reach the lowest tax bracket. Coupons remain within the fund and are reinvested, keeping a larger share of capital exposed to compound interest. Tax on gains still applies, but payment occurs when the investor sells the ETF shares.
To demonstrate the impact of early tax withdrawals, Caique Cardoso presented a 20-year simulation based on the IMA-B. Two strategies tracked the same index and experienced the same periods of appreciation and decline, but only one was subject to recurring reductions from come-cotas. By the end of the exercise, the difference in returns exceeded 250%. The comparison was presented as a theoretical simulation because an equivalent ETF did not exist at the beginning of the period.
Transparency was another central theme. Fixed income is traditionally traded over the counter, where investors may receive different prices for the same security depending on the financial institution, commercial relationship, transaction size, and bargaining power.
ETFs trade in an electronic market. Investors can view bid and ask quotes, available volumes, completed transactions, and execution times. This does not eliminate spreads, but it allows investors to compare prices before trading and reduces the information asymmetry found in bilateral transactions.
Itaú Asset also provides intraday estimates of share values and the implied yields of its fixed-income ETFs. The purpose is to translate the exchange-traded price into a yield reference, bringing the individual investor’s experience closer to that of larger institutions.
Among the strategies presented, CDYB11 combines a majority allocation to Treasury Selic securities with a portion invested in the inflation-linked Treasury bond maturing in 2060. The long-dated security increases the portfolio’s target average repricing period to approximately 800 days, above the 720-day threshold associated with the 15% tax rate.
The additional margin seeks to reduce the risk of falling outside the intended tax category during periods of sharp fluctuations in real interest rates. Returns tend to remain close to the CDI because most of the portfolio is invested in floating-rate securities. However, the position in the 2060 NTN-B adds volatility and may cause the fund to outperform or underperform the benchmark during certain periods.
For inflation-linked exposure, B5P211, IMAB11, and IB5M11 represent different segments of Brazil’s government-bond curve. B5P211 has a shorter duration, IMAB11 broadens the exposure across maturities, and IB5M11 has greater sensitivity to long-term real interest rates.
For fixed-rate exposure, IRFM11, IDKA11, and 5PRE11 also provide different levels of duration. The purpose is to allow investors to adjust their exposure according to their time horizon, risk tolerance, and view on the yield curve.
The TD3511, TD5011, and TD6011 family initially concentrates its portfolios in inflation-linked Treasury bonds with the corresponding maturities. Coupons are reinvested within the funds, but the ETF shares do not mature. Before the declining term of the portfolio changes the tax classification, the strategy shifts toward a shorter-duration allocation.
Within this family, TD3511 stood out in terms of net inflows. An analysis published by DEX showed that the product linked to the inflation-linked Treasury bond maturing in 2035 concentrated more inflows than the other maturities offered by the asset manager.
Vehicle selection influences the investor experience
The two panels converged on one message: analyzing an ETF requires looking beyond the benchmark index.
The liquidity of the underlying assets, trading spreads, market-maker activity, taxation, dividend policy, reinvestment, international structure, and the asset manager’s operational capabilities can influence the investor experience and net returns.
In equities, ETFs provide diversification and access to different markets through shares traded on B3. In fixed income, they bring greater transparency to a segment traditionally traded over the counter and may reduce the effects of advance taxation.
The growth of Brazil’s ETF industry therefore depends on more than the number of products available. It also requires a broader understanding of the mechanisms behind the shares traded each day and the selection of the structure best suited to each investment objective.
