Brazil’s Nubank Enters ETF Market with Dividend Distribution Fund

Latest quotes

Bloomberg Línea — The Latin American fintech Nubank announced its entry into the exchange-traded fund (ETF) market on Thursday (28th), aiming to expand its product offerings and diversify its customer base. The debut includes two ETFs focused on dividend distribution, following a new index derived from the Brazilian Ibovespa, which was also launched on Thursday in partnership with the Brazilian stock exchange, B3, called the Ibovespa Smart Dividendos.

Andres Kikuchi, the executive director of Nu Asset Management, stated that the goal is to reach both Nubank customers, who can invest through the company’s platform, and other investors through B3.

“The product allows for greater access not only for individual investors but also for the institutional market. ETFs have a broader scope; it’s a positive development for the asset management business and offers much wider solutions,” he told reporters.

Kikuchi revealed that Nu Asset plans to introduce new ETFs in the coming months, starting with equity ETFs. However, he does not rule out the development of fixed income and hybrid index funds.

“Starting with these two, we are beginning the process of creating new ETFs that will become an important pillar in our search for new solutions and funds at Nu Asset,” he said. “We see tremendous growth in the ETF market worldwide, and this is expected to happen in Brazil in the coming years. We want to be positioned to secure our space when that happens.”

Index and ETFs

The benchmark index will initially comprise 21 companies and, like other B3 indices, will be rebalanced every four months (in January, May, and September). The index considers companies in the Ibovespa that offer the highest dividend yields relative to stock prices. This criterion will also be used to weigh the stock’s importance in the portfolio, along with the consistency and lower fluctuation in dividends paid.

In other words, companies that consistently pay higher proportional values over the years will have a greater weight in the portfolio. The two ETFs - Ibov Smart Dividendos and Nu Renda Ibov Smart Dividendos - will track the new benchmark. The difference between them lies in how the dividends are utilized.

While in the first ETF, dividends are reinvested in the ETF itself, similar to other index funds traded on B3, the second will have monthly dividend payments to shareholders. The distribution of dividends by ETFs was allowed by B3 earlier this year, but there were no products in the market with this strategy.

Taxation

In Brazil, equity ETFs are subject to a 15% income tax on profits obtained from sales. In the case of ETFs that distribute dividends, there is a 15% tax on the value of dividends paid to shareholders, which will be collected directly by the fund administrator. The two new Nubank exchange-listed funds have a two-business-day liquidity.