Wednesday, January 03, 2007

The First BRIC ETF Was Launched In September

In 2003 Goldman Sachs published a report on the top emerging markets for the next 50 years - Brazil, Russia, India, and China (collectively known as "BRIC"). In the report Goldman Sachs projected that the BRIC countries will grow much faster than any of the current developed markets (including the U.S., Japan, Germany, the U.K., Italy, and France) and the local currencies of the BRIC countries will appreciate some 100-300% against those of the developed markets.

I have been waiting for an ETF to be introduced that invests only in the BRIC countries. Unfortunately there was none until very recently. The best that a small investor could do was to purchase a broad-based emerging markets ETF such as the iShares MSCI Emerging Markets Index Fund ("EEM") that invests in the BRIC countries as well as many other countries, including South Korea and Taiwan. Alternatively, one could also invest in country-specific ETFs and closed-end funds, such as the iShares MSCI Brazil Index Fund ("EWZ"), iShares FTSE/Xinhua China 25 Index Fund ("FXI"), Templeton Russia & East European Fund ("TRF"), and Morgan Stanley India Investment Fund ("IIF").

Luckily, the first BRIC ETF has finally been introduced. During mid-September 2006, the Claymore BRIC ETF was unveiled. The Claymore BRIC ETF invests solely in the BRIC countries and tracks the Bank of New York's BRIC Select ADR Index. Unfortunately, the BRIC ETF does not invest evenly in the BRIC countries - about 48% of the assets are in Brazil, 31% in China, close to 14% in India, but just 6% in Russia. Moreover, the ETF's assets are highly concentrated among a handful of stocks - the ETF owns both common and preferred shares of the Brazilian company Petroleo Brasileiro (symbol: PBR) totaling 15.53% of the ETF's net assets.

Although I am glad to finally see a BRIC ETF, I'm going to sit on the sidelines. I don't like the uneven investment in the BRIC countries, with the investment in Brazilian companies being nearly eight times as large as the investment in Russian stocks. For the time being, I will continue to invest in EEM and the country-specific ETFs and country-specific closed-end funds I listed above.

No comments: