Back in 2001, an economist from Goldman Sachs (NYSE:GS), Jim O’Neill, published a paper entitled “Building Better Global Economic BRICs.” Little did he know that his acronym would become widely used on Wall Street. BRIC stands for the emerging markets of Brazil, Russia, India and China.
No doubt, these are some of the most powerful nations in the emerging economies. And they have been the focus of many investors who are looking for growth and global diversification.
So how can you participate? Well, you can do so with different types of mutual funds and exchange-traded funds (ETFs). Let’s take a look:
iShares MSCI Brazil ETF
Until about 2000, Brazil was plagued with instability, with recurring bouts of recessions and inflation. But the country has since been able to focus on growth as well as leverage its natural resources, such as in agriculture and mining. Last year, the economy grew by 7.5%.
While there are many Latin American mutual funds that have large positions in Brazil, few are pure plays. So an ETF is a better option, like the iShares MSCI Brazil ETF (NYSE:EWZ), which has $12.3 billion in assets.
Generally, the index is focused on the larger operators in Brazil. Some of the top holdings include Petroleo Brasileiro, Vale and Itau Unibanco.
ING Russia Fund
Even though Russia has tried to diversify its economy, the fact is that it is heavily dependent on energy. And assuming that prices will remain high for the long haul – which seems reasonable – then the country should benefit nicely.
So where to invest? One of the best performers is the ING Russia (MUTF: LETRX) BRIC mutual fund. While it is full of energy and natural resources stocks, there are also positions in areas like financials.
But the volatility can be grueling. In 2008, the ING Russia fund lost a stunning -71.51%. Ouch!
Then in 2009, the fund was up 129.97% and a year later, the gain was 27.57%.
So what about the long-term track record? The average annual return for the past ten years was a sizzling 25.34%.
Matthews India Investor Fund
India does face many challenges, like corruption, an ailing infrastructure and even inflation. But the country has a talented workforce, strong companies and rising wealth. Last year, India grew by about 8.3%.
For investors looking to invest in the country, a good option is the Matthews India Investor (MUTF: MINDX) BRIC mutual fund. It certainly helps that the portfolio managers — Sharat Shroff, Andrew Foster Sunil Asnani – have extensive experience in Asia. Basically, they look for strong growth opportunities. And usually this means investing in smaller companies.
Fidelity Advisor China Region Fund
Of course, China has turned into the world’s standout economy. Even with higher interest rates and problems with inflation, the growth rate is still about 9%. China is also becoming a key player in many important industries, such as technology.
There are a plethora of China mutual funds. But one to look at is the Fidelity Advisor China Region (MUTF: FHKAX) fund, which has $2.2 billion in assets.
To deal with the volatility and the risks, the portfolio managers tend to focus on larger companies that have strong barriers to entry. Thus, some of its top holdings include CNOOC Ltd. (NYSE:CEO) , Industrial And Commercial Bank Of China, Tencent and BOC Hong Kong.
The fund also has a relatively low expense ratio, at 1.31%.
SPDR S&P BRIC 40 ETF
Want a fund that has investments in all the BRIC nations? To this end, you can try the SPDR S&P BRIC 40 (NYSE:BIK) ETF. The portfolio is quite broad, with exposure across key industries like financial services, utilities, energy and consumer goods. China has the largest weighting in the portfolio, at nearly 45%, and Brazil is #2 at over 25%.
Despite the diversification, the volatility can still be significant. Keep in mind that the ETF is down 7.32% in the past month.
Tom Taulli’s latest book is “All About Short Selling” and he has an upcoming book called “All About Commodities.” You can find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.