Emerging markets are more than BRICs
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The BRIC backlash has begun. The acronym BRIC — coined by Jim O'Neill, chairman of Goldman Sachs Asset Management — stands for Brazil, Russia, India and China. It's shorthand for both emerging markets and a strategy by which some fund managers invest in them. Goldman sells an actively managed BRIC mutual fund, as does Franklin Templeton. Guggenheim Investments and iShares, likewise, offer exchange-traded funds built around BRIC indexes.
But lately, stock markets in the BRIC countries — the four biggest emerging markets — have gone soft. The MSCI BRIC index lost 2.45%, annualised, over the three years through September, while MSCI's broader emerging-markets index gained 3.13%. The Class A shares of Goldman's BRIC fund lost 0.73%, annualised, over the same period, and those of the Templeton fund lost 0.67%, Morningstar said.
Some fund investors have responded by jumping the wall. Last year, a net $5.4 billion of investor money flowed out of the BRIC offerings tracked by EPFR Global in Cambridge, Mass. An additional $1.3 billion leaked out through the end of August.
Some investment professionals say the lackluster returns point to a peril of using only four countries, even ones as big and bountiful as Brazil, Russia, India and China, as proxies for a larger investing world. Different companies and index creators define emerging markets differently, but broader indexes might include 20 countries.
"The BRICs represent 44% of the MSCI emerging-market index," said John R Chisholm, chief investment officer at Acadian Asset Management in Boston. "That's a big percentage. But if you were investing in the US, you wouldn't limit yourself to only the four biggest sectors. That wouldn't make sense. Similarly, it doesn't make sense to limit your universe among the emerging countries. There's never really an investment rationale for limiting yourself like that."
By focusing only on the BRICs, an investor would have missed the bull markets this year in Egypt, up about 30% through September, and Turkey, up more than 60%.
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