BRIC-ing it

Note: This article was ghost-written for an asset management firm and used on Seeking Alpha. As an addendum, Goldman Sachs ended its BRIC fund in November 2015, meaning the BRIC acronym was technically laid to rest by the investment bank before it reached 15 years.

It's almost 15 years since Goldman Sachs' then chief economist, Jim O'Neill, coined the term 'BRIC.' The idea was that four countries (Brazil, Russia, India and China) were going to be the growth drivers for the 20th century. The idea was catchy, convincing and caught on. Soon, there were more acronyms and groups of countries doing the rounds: MINT and Next 11 were two that spring to mind, but probably none were as notorious as the BRICs.

As of 2015, the BRICs aren't nearly as popular with future gazers as they once were. True, China did experience several years of double-digit growth after the acronym was invented but you didn't need an economist to tell you that would happen. Russia, India and Brazil have fluctuated between star performers and dunces of the class: in short, typical emerging market economies. All in all, a pass mark for the BRIC prediction but better predictions have been made.

Chalking up another BRIC

It’s almost 15 years since Goldman Sachs’ then chief economist, Jim O’Neill, coined the term ‘BRIC.’ The idea was that four countries (Brazil, Russia, India and China) were going to be the growth drivers for the 20^th century. The idea was catchy, convincing and caught on. Soon, there were more acronyms and groups of countries doing the rounds: MINT and Next 11 were two that spring to mind, but probably none were as notorious as the BRICs.

As of 2015, the BRICs aren’t nearly as popular with future gazers as they once were. True, China did experience several years of double-digit growth after the acronym was invented but you didn’t need an economist to tell you that would happen. Russia, India and Brazil have fluctuated between star performers and dunces of the class: in short, typical emerging market economies. All in all, a pass mark for the BRIC prediction but better predictions have been made.

But as faddish as the term BRIC was in the middle of the last decade, it’s equally faddish now to write them off entirely. True, there hasn’t been much good news emanating from any of the BRIC countries for the past year or two but we’re not even 20% through the 21^st century. Many of the fundamentals that Jim O’Neill attributed to the countries are still in place, meaning there are still opportunities for investors who are willing to ride out the inevitable storms. Furthermore, even if they’re out of vogue, the BRIC countries have a combined GDP of about 20% of the world economy. And close to a third of the world’s population. So, keeping an eye on their progress is not only of interest – it’s of importance.

Blackrock iShares offer a BRIC Etf (BKF), which has understandably been a poor performer for the past five years. Given how the BRIC acronym has fallen from grace, there’s every chance the ETF will be removed from the Blackrock portfolio entirely over the next few years, so it may be better to watch the ETFs offered for each individual country when investing in this group is concerned.

iShares MSCI Brazil Capped ETF (ESZS)

The Brazil ETF is trading at around half the level it was five years ago, and with Brazil facing into an economic abyss, it’s difficult to see this ETF recovering value anytime soon. However, the companies on the list here are both well diversified (Brazil Foods, AmBev, Bradesco Banking corporation, Vale mining) and not entirely dependent on the fate of the Brazilian economy. If (and it’s an ‘if’ not a ‘when’) President Rouseff finally deals with structural issues in the Brazilian economy, this ETF will almost certainly experience a bounce.

iShares MSCI Russia Capped ETF (ERUS)

When Winston Churchill famously called the future of Russia ‘a riddle, wrapped in a mystery, inside an enigma,’ he may have been understating it. Sanctions against Russia in the past two years have inevitably led to a fall in its ETF, but possibly not by as much as one might expect. The Russia ETF is inevitably heavy on energy (Gazprom, Transneft, Tatneft), but also has some of the largest food retailers in Europe in its composition (Magnit). There’s one thing you can certainly say about Russia, which should apply to its ETF: The country has weathered so many economic crises that it can surely ride out another one and come back stronger in the future.

iShares MSCI India ETF (INDA)

And the star performer of the BRICs group is… India. Unlike the first two ETFs in this group, India isn’t going through a particularly dire economic period. Its growth is still hovering at around 4% - highly respectable in global terms. This ETF is trading at around 14,000, about 40% over what it was trading for three years ago. There are several familiar names in its composition, including some tech firms (Infosys, Tata), pharmaceuticals (Sun Pharmaceutical) and consumer staples (Hindustan Unilever).

iShares FTSE China ETF (FCHI)

It’s hard not to detect an element of schadenfreude in the US Press about China’s short-term economic demise. It would be unwise of anyone to think it’s going to be anything but short-term, though. It says a lot about the expectations that China has created for itself that, despite several months of negative financial coverage, the China ETF is still up almost 30% on where it was three years ago. Conclusion? Nearly fifteen years on from Jim O’Neill’s coining of the term BRICs, China is still the one you should invest in. With prices down 33% on last year, now is not a bad time to get involved.

Conclusion

Long after popular acronyms fade away, fundamentals remain. Anyone who thought investing in four of the world’s largest emerging markets and wouldn’t get a bumpy ride was fooling themselves. The BRICs provide enough evidence of that. However, with 20% of the world economy and over 30% of the world’s population, the BRICs still represent an excellent choice for anyone who wants to take a position on the long-term. There’s a maxim here which applies almost perfectly right now: Be careful when others are greedy and greedy when others are careful. In 2015 where the BRICs are concerned, too many are being careful. It may be your opportunity to be greedy.