With the Federal Reserve maintaining record low interest rates, many American investors are looking beyond their borders for new, high growth investment opportunities. While developed European and Asia Pacific economies have received a significant amount of attention, the most popular investment destinations remain the four largest emerging market countries: Brazil, Russia, India and China, collectively known as the “BRIC” economies.
As the emerging markets of the world urbanize and move away from rural areas, many take on non-agricultural employment for the first time and find themselves with a new luxury: discretionary income. Investors can use the BRIC ETFs to favorably position themselves as consumers, and infrastructure overseas spur to growth [see 101 ETF Lessons Every Financial Advisor Should Learn].
As investors get swept up in the thrill of high growth and return potential, some do not take the time to check out the holdings and country allocations of these funds. Many feature a heavy tilt towards the largest and most established BRIC markets, Brazil and China, while some even substitute a country for another emerging market [try our Free ETF Head-To-Head Comparison Tool].
This heavy tilt towards Brazil and China may not always be beneficial, as these markets, though still attractive, do not exhibit the same high levels of growth as they have in the past. Investors looking for exposure to the BRIC economies should always consider the geographical outlay of the portfolio, since the growth potential of these economies vary drastically and may change over time [also check Dividend.com's Money Management Tips Center].
The table below compares the total allocation to Brazil and China equities along with the total number of holdings among four popular BRIC ETFs, revealing significant differences between them. The last ETF, BICK, excludes Russia, instead substituting South Korea for more Pacific exposure. Please also note that the size of each bubble is based on the total assets under management in that ETF:
- MSCI BRIC Index Fund (BKF, B+)
- SPDR S&P BRIC 40 (BIK, B+)
- BRIC ETF (EEB, B+)
- BICK Index Fund (BICK, C+)
Of course, there’s no universally right choice from the above ETFs. For some investors, a BRIC ETF featuring a heavy tilt towards China and Brazil makes sense; for others, a more balanced and deeper portfolio might be the way to go.
Disclosure: No positions at time of writing.