Catch the Growth with a Piece of BRIC

It’s BRIC, not BRICK!

For investors looking for growth outside US and other developed economies, emerging markets such as Brazil, Russia, India, and China (BRIC) offer great opportunities. With 2007 estimated real GDP growth at 3.7%, 6.7%, 9.2%, and 10.7%, respectively (according to indexmundi.com), these countries just can’t be ignored. There are many options for US investors to tap into BRIC markets, from individual stocks (ADRs) to mutual funds and ETFs investing in companies listed on domestic exchanges or US markets. Of these choices, the easiest way to stay diversified is buying exchange-traded funds that specialize in these countries. For that, we can choose, for example,

• iShares MSCI Brazil Index (EWZ)
• Market Vectors Russia ETF (RSX)
• iPath MSCI India Index ETN (INP)
• iShares FTSE/Xinhua China 25 Index (FXI)

While ETFs give investors better exposures to each country than individual stocks, investing in a single country can still pose significant risk as pointed out by articles on Wall Street Journal after the sell off of Chinese stocks in February.

Is there any other choice available to invest in all these four countries at the same time? The answer is State Street’s SPDR S&P BRIC 40 ETF (BIK). The fund, which was launched on June 16, 2007, currently invests in stocks from BRIC that are listed on the Hong Kong Stock Exchange, the London Stock Exchange, and Nasdaq/NYSE. According to the fund factsheet, the weightings of each country in the fund are:

Performance

Though the fund has been around for only two months, the underlying index has a much longer history. Incepted in February 2001, the index has 1-year annualized return of 49.50%, 3-year 47.60%, and 5-year 39.66%. Since trading of the fund started on June 22nd, BIK has a return of 5.48% as of August 27th.

Costs

The fund’s net expense ratio (ER) is 0.40%. The cost is slightly higher than popular international ETF such as EFA (0.35%), but lower than emerging ETF such as iShares MSCI Emerging Markets Index (EEM) which charges 0.77%. The underlying index will be rebalanced annually in December.

Holdings

The fund’s top 10 holdings are:

• China Mobile Ltd.
• GAZPROM O A O SPON ADR
• Lukoil Holdings (ADS)
• Petroleo Brasileiro S/A (ADS)
• Companhia Vale do Rio Doce (ADS)
• Petro China Co. Ltd.
• Banco Itau Holdings Financeira S.A. (ADS)
• China Life Insurance Co. Ltd. (China)
• Banco Bradesco S/A (ADS)
• China Construction Bank Corp.

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