After a year full of disappointment in 2013, it has been more of the same for BRIC exchange traded funds in 2014.
The iShares MSCI BRIC ETF (NYSEArca: BKF) and the Guggenheim BRIC ETF (NYSEArca: EEB) are off an average of 3.6% to start the new year. When it comes to the four major single-country BRIC funds, the 2014 performances have been so dismal that the WisdomTreee India Earnings ETF (NYSEArca: EPI) is the best of the lot with a loss of 2.2%. [Getting Selective With Emerging Markets]
Ongoing struggles for ETFs tracking Brazil, Russia, India and China come even as scores of analysts, banks and strategists reiterate that emerging markets equities are inexpensive. In fact, Chinese and Russian shares are among the most deeply discounted in the developing world. Russian stocks, which usually trade at a discount to the MSCI Emerging Markets Index, are now so inexpensive that they trade at discounts to their own 10-year averages. [Some Country ETFs are Dirt Cheap]
Attractive valuations have not been enough to spur BRIC ETFs higher this year, but those slack performances may offer a silver lining for prescient investors. That being the opportunity to evaluate a pair of new beyond BRICs ETFs.
The pair is comprised of the EGShares Beyond BRICs ETF (NYSEArca: BBRC), the older of the two funds, and the SPDR MSCI EM Beyond BRIC ETF (NYSEArca: EEMB). Neither ETF has posted a jaw-dropping gain to start 2014, but both are modestly higher and that is something of an accomplishment relative to BRIC and traditional, diversified emerging markets funds.
There are key differences between BBRC and EEMB. For example, BBCR allocates about a third of its weight to Mexico and South Africa while lower beta markets South Korea and Taiwan combine for almost 31% of EEMB.
Of note to those considering BBRC, the ETF transitioned to the FTSE Beyond BRICs Index in October. The FTSE Beyond BRICs Index generally has 75% exposure to companies in more developed emerging markets (excluding Brazil,Russia, India, China, South Korea and Taiwan) and 25% exposure to companies in frontier markets, which are less developed. [Beyond BRICs ETF Moves to new Index]
That means Qatar and Nigeria currently combine for almost 20% of BBRC’s weight and the ETF offers light exposure to the likes of Kenya, Oman and Sri Lanka, among others.
EMBB is perhaps the more conservative option. After the large weights to South Korea and Taiwan, South Africa and Mexico combine for almost 28% and the fund, which is just six weeks old, features no frontier markets in its lineup. [Two ETFs for Beyond BRICs Exposure]
Both funds are heavy on financial services names, but BBRC is somewhat conservative at the sector level as telecom and staples stocks combine for 31%. After its 28.1% weight to financials, EMBB devotes a combined 34% to technology, materials and discretionary names.
In the current environment for emerging markets ETFs, the most important trait for BBRC and EMBB may just be that Brazil, Russia, India and China are nowhere to be found in these funds.
EGShares Beyond BRICs ETF
Tom Lydon’s clients own shares of EEB.