The BRIC – Brazil, Russia, India and China – economies are established players in the emerging markets, but investors who want exposure to other potential rising stars in the space can consider exchange traded funds that specifically target beyond the BRICs.
While the BRIC nations maintain dominant positions in a many emerging markets ETFs, the equity markets in those countries, Brazil in particular, have struggled this year. Moreover, Russia is experiencing terminal population declines and loss of economic influence as the U.S. ramps up oil and gas production, writes Charles Sizemore for Forbes.
The large allocations to the BRIC countries, Taiwan and South Korea in some diversified developing world ETFs has prompted investors to consider other emerging markets. [State Street’s Beyond BRIC ETF Goes Live]
By focusing solely on the BRICs, investors are missing out on investment opportunities in rising emerging countries, like Mexico, Turkey, Indonesia and South Africa, Sizemore points out.
ETF investors, though, can now segment the emerging market space, with two so-called beyond BRIC ETFs: EGShares Beyond BRICs (NYSEArca: BBRC) and SPDR MSCI Beyond BRIC ETF (NYSEArca: EMBB).
BBRC tries to reflect the performance of the FTSE Beyond BRICs Index, which has about 75% exposure to companies in more developed emerging markets (excluding Brazil, Russia, India, China, Argentina and Taiwan) and 25% exposure to companies in frontier markets, which are less developed. BBRC has a 0.58% net expense ratio. [Beyond BRICs ETF Transitions to New Index]
The EGShares ETF has a significant 33.8% weight to financials sector stocks, followed by telecom services at 18.9% and consumer staples at 12.2%. The fund also has a large tilt toward Mexico at 16.6%, South Africa at 16.1% and Malaysia 12.3%. Additionally, the ETF includes exposure to Nigeria, Qatar, United Arab Emirates and Vietnam, which are classified as frontier markets. South Korea does not make it onto the list since FTSE upgraded South Korea to developed market status due to its market size and scale of economic development.
EMBB, on the other hand, tries to reflect the performance of the MSCI EM Beyond BRIC Index, which is comprised of emerging market stocks and excludes issuers domiciled in BRIC economies. The ETF has a 0.55% expense ratio.
State Street Global Advisors’ SPDR beyond BRIC ETF includes a more diversified 258 holdings, compared to BBRC’s 90 components. The financial stocks also make up the largest sector exposure at 27.2%, followed by information technology 13.3% and materials 10.8%.
Unlike BBRC, EMBB includes exposure to South Korea and Taiwan, which are the two largest country weights at 15.3% and 15.2%, respectively, followed by South Africa 14.7%, Mexico 13.4% and Malaysia 9.7%. EMBB also tries to cap country exposure to 15%.
For more information on developing countries, visit our emerging markets category.