ETF Strategies for Playing the BRICs
March 23rd, 2010 at 1:00pm by Tom Lydon
So far into this recovery, emerging markets have led the charge. At the forefront of that charge are four countries collectively known as the BRICs. Get to know them, and get to know the exchange traded funds (ETFs) that track them.
The BRICs – Brazil, Russia, India and China – were so dubbed by a Goldman Sachs analyst after it became apparent that these four economies had enormous potential for growth in the coming years. Now that a recovery appears to be in place, many feel that these nations have evolved into long-term prospects. [What Defines an Emerging Economy?]
Ron Rowland for Money and Markets makes a case for the BRICs by pointing out that developed markets such as the United States, Europe and Japan are still in not-so-great shape and could be in for a long period of tepid growth. While these countries lag, the BRICs and their ilk may very well catch up.
Brazil boasts a growing middle class and natural resources galore; Russia benefits from high energy prices; India has a lot of intellectual capital and a young, entrepreneurial workforce; and China, the largest of all, boasts nearly everything: a growing middle class, bustling city centers, strong imports and exports. Rowland notes this amazing statistic: China’s economy is 70 times larger than it was in 1978. Wow. [Brazil ETFs: Using Caution If There's a Bubble.]
It’s a lot of food for thought. If you’re interested in using BRIC ETFs to get exposure:
- Think about how much exposure you want. BRIC funds range from broad to narrow funds with a single-country or two-country focus. The more narrow exposure, the more risk you take on.
- Think about the country weightings in the broad BRIC funds – some have a larger allocation to Brazil, while others give the heaviest weighting to China. Which country do you want the most exposure to?
- What’s your strategy? A simple one we suggest is using the 200-day moving average, which has you in and out of positions based on where they are in relation to their long-term trend lines. [How to Follow Trends.]
- For a list of many of the available BRIC-related ETFs, read our special report. Since our report ran, many new funds have launched, including EGS INDXX Brazil Infrastructure (NYSEArca: BRXX), Claymore/AlphaShares China Technology (NYSEArca: CQQQ) and Global X China Materials (NYSEArca: CHIM). These can be used to fine-tune your BRIC exposure even further.
- If you want some oomph and you know that leveraged and inverse ETFs are right for you, Direxion has a pair of leveraged bull and bear BRIC funds: Direxion Daily BRIC Bull 2x (NYSEArca: BRIL) and Direxion Daily BRIC Bear (NYSEArca: BRIS). [Everything You Need to Know About Leveraged ETFs.]
For more stories about emerging markets, visit our emerging markets category.
- SPDR S&P BRIC 40 ETF (NYSEArca: BIK)
- iShares MSCI BRIC Index (NYSEArca: BKF)
- Claymore/BNY Mellon BRIC (NYSEArca: EEB)
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.