Visual Risk Analysis Of The MSCI BRIC Index Fund (BKF)

by on June 11, 2013 | ETFs Mentioned:

When it comes to emerging market exposure, no region is more popular than BRIC, as this corner of the market is home to the largest and some of the fastest growing economies in the world. But while Brazil, RussiaIndia, and China have flourished over the years, investors have recently witnessed a somewhat troubling slowdown in these once booming nations. As such, investors have begun to question the potential in this once lucrative bloc, leading many to shy away from investing in  broad-based products that capture the entire BRIC region [see Single Country ETFs: Everything Investors Need To Know].

For those who still want to establish exposure to BRIC economies but are struggling between choosing broad-based funds and country-specific ETFs, we take a closer look under the hood of each strategy:

How the MSCI BRIC Index Fund Stacks Up Against Country-Specific FundsRussia

The chart below illustrates the differences between risk/return profiles among the biggest BRIC country-specific ETFs and the broad-based MSCI BRIC Index Fund (BKF). Note that the risk/return profile is defined by a fund’s 200-day volatility and trailing one-year return, while the respective annual dividend yield of each ETF is represented by the size of each bubble [see Asia-Centric ETFdb Portfolio]:

The Bottom Line

It is important to note that the chart above is based on trailing returns, and as such, its compositions are subject to changes over time. When looking solely at performance, the China ETF (FXI) has outperformed both the country-specific funds and the broad based BKF. The Brazil Fund (EWZ) on the other hand, offers the highest yield at 3.11%, though over the trailing 1-year period, the fund has lost over 3%. The broad-based BKF holds a rather attractive risk/return profile, with the lowest volatility of the list and second-highest trailing 1-year return.

And while there is no universally right choice from the above ETFs, it is important for investors to take a close look under the hood of these products to determine which combination of risk and return is appropriate.

Follow me on Twitter @DPylypczak.

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Disclosure: No positions at time of writing.