BRIC ETFs Put to the Test

The BRIC (Brazil, Russia, India, China) economies are some of the fastest-growing in the world, but which focused exchange traded fund (ETF) is better?

Once thought to be de-coupled form the rest of the world, BRIC ETFs hit the market with major investor interest, and although there’s a downtrend showing through right now, these funds are still useful in the long run for diversification and portfolio allocation, reports Jonathon Bernstein for ETFZone.

Three BRIC ETFs he examines are:

• SPDR S&P BRIC 40 Index (BIK): down 58.5% year-to-date; 0.5% expense ratio

• iShares MSCI BRIC Index (BKF): down 61.2% year-to-date; 0.75% expense ratio

• Claymore Bank of New York BRIC (EEB): down 57.1% year-to-date; 0.7% expense ratio

The ETFs are closely correlated to the U.S. benchmarks, however, their performance has nothing to do with this, so they are still a useful diversification tool. China is growing at around 10% per year, India is growing at 8-9%, Brazil and Russia 5-7%. These rates are not constant, and of course depend on healthy participation of Western economies, as well as the rest of the world.

Allocation by country is different in each fund, while China and Brazil dominate 65-85% in each, and India and Russia get honorable mentions, but scant exposure. Industry allocation is more similar as industrial, energy, telecommunications and financials at the forefront.

After the downturn, some of the BRIC countries will likely recover better than others. Some might be in for long-term damage recovery, while others should rebound nicely.

Either way, we use trends to identify what areas are moving, and for the time being, the trend in these funds is down along with the rest of the globe.