• U.S. Equity Index futures’ smaller cash outlay can provide a large advantage compared to fully funded investments such as Exchange Traded Funds (ETFs).
  • Cash not required for futures margin can earn historically high domestic deposit rates.
  • Current low U.S. index correlations to Ibovespa can offer diversification benefits.
  • Using Equity Index futures reduces currency exposure compared to ETFs.

Brazilian investors who use U.S. Equity Index futures can obtain U.S. equity index exposure to diversify their portfolios with a smaller cash outlay than ETFs. This allows them to deposit the remaining cash at historically high domestic interest rates while diversifying their portfolios and minimizing foreign exchange risk.

Trading Equity Index futures on U.S. Indices such as E-mini and Micro E-mini futures on the S&P 500, Nasdaq-100, Dow Jones, or Russell 2000 requires only a portion of the total investment in the form of futures margin,1 roughly 10%. In comparison, an investment in an ETF requires an investor to convert the full amount into USD - thus the term fully funded.

The significant benefit of using U.S. Equity Index futures is that an investor can obtain exposure to the complete investment profile of the underlying index, keep most of the cash that would have been used to buy an ETF (roughly 90%), deposit those funds domestically, and earn a historically high interest rate.

Ibovespa and S&P 500 returns

During the first half of 2023, the Ibovespa and the S&P 500 indices had positive returns. Exhibit 1 charts the Ibovespa index and the S&P 500 index. The Brazilian index demonstrated more volatility as can be seen in the chart by the larger vertical range. Calculated daily return volatility of the Ibovespa was 1.15%, whereas the S&P 500 daily return volatility was 0.93%, nearly 25% lower than its Brazilian counterpart YTD 2023. Portfolio theory highlights that a higher return index with lower volatility of returns can allow a trader to invest more.

Exhibit 1: Positive returns for Ibovespa and S&P 500, YTD through August 2023

Exhibit 2: Rebased index levels for Ibovespa and S&P 500, YTD through August 2023

Exhibit 3: 5-Year Rebased Index Levels S&P 500 and Ibovespa

Exhibits 2 and 3 are provided to visualize the potential benefits of investing in U.S. Indices. Both charts are rebased to 100 during two time periods: 2023 through the end of August and from the beginning of 2019 and also through the end of August 2023. In both instances, the S&P 500 index ended each period higher than the Ibovespa.

Exhibit 4 shows the daily return correlations between the Ibovespa Index and the four major U.S. equity indices, which are currently quite low versus their longer-run histories. A lower correlation can mean that a negative or positive return in one index is less likely to occur in the other index. This can reduce the overall portfolio return volatility by diversifying into U.S. equity indices.

Exhibit 4: Low Correlation Between Ibovespa and U.S. Indices in 2023. One-year correlations averaged YTD, past 5 and 10 years

Ibovespa Daily Correlation YTD through
August, 2023
Annual Average
Annual Average
S&P 500 27.5% 52.8% 49.8%
Nasdaq-100 13.8% 47.8% 43.7%
Russell 2000 35.1% 49.0% 45.6%
Dow Jones 30.0% 51.7% 48.5%

Source: Bloomberg

The case for diversification into U.S. equity indices appears strong based on historically lower volatility and correlation.

Domestic interest rates

In our example, when futures margin is assumed to be approximately 10%, the remaining 90% can be deposited to earn interest. The Selic rate is an often-referenced domestic overnight interest rate. At present it is just off its recent high of 13.75% but well above its 10-year average of around 9%. Exhibit 3 plots the history of the Selic rate, its average, and the USDBRL rate over the prior 10 years. Both the Brazilian interest rate and the USD are at the high side of this 10-year period.

Exhibit 5: Interest Rates Remain Historically High

[B]3 Micro S&P 500 futures

The [B]3 Micro S&P 500 futures contract has a contract size of USD 2.5 x the S&P 500 index contract. The [B]3 contract is one half the size of the CME Group Micro E-mini S&P 500 futures and 20 times smaller than the E-mini S&P 500 futures contracts. The smaller-sized contracts allow investors ease to gain international equity exposure to one of the most followed U.S. equity indices. While the contract is priced in U.S. dollars, margin and cash settlement is in Brazilian reals.

CME Group suite of Micro and E-mini Index futures and options

For those Brazilian investors that seek larger sizes, additional indices, and option trades, they can use CME Group Equity Index futures and options contracts. The key indices include the S&P 500, Nasdaq-100, Dow Jones, or Russell 2000 and offer a wide variety of investor exposure to the most well-known U.S. equity indices. Importantly, futures require initial margin in USD, but the amounts are smaller than a fully funded ETF which has currency risk for the fully funded position. 

The variability of the USD/BRL exchange rate can create under or overperformance of a fully funded investment. Exhibit 4 is a similar chart to exhibit 1, but the S&P 500 is based in Brazilian real terms. It has been a volatile trade in 2023. 

Exhibit 6: Currency risk impacts investments

Managing currency exposure through futures minimizes the initial investment’s currency risk to only margin used i.e., 10% of the notional exposure. Offsetting currency swings with interest income when interest rates are higher than average is what portable alpha can help deliver.


  1. Futures margin is subject to change. View the latest margin here.

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The securities may not be offered or sold to the general public in Brazil, but only to professional investors pursuant to article 8, item VI, of Resolution No. 160/2022 issued by Brazilian Securities Commission (Comissão de Valores Mobiliários – “CVM”). Accordingly, the securities have not been and will not be registered with CVM, nor have been submitted to the foregoing agency for approval. Documents relating to the securities, as well as the information contained therein, may not be supplied to the general public in Brazil, as the offering of securities is not a public offering of securities in Brazil, nor used in connection with any offer for subscription or sale of securities to the general public in Brazil.

All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.

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