Leave the BRIC, Take This ETF

ETF Trends

With the exception of India, BRIC equities have been disappointments once again in 2014. That after a 2013 in which all four of the largest single-country BRIC ETFs finished lower, led by an almost 18% loss for the iShares MSCI Brazil Capped ETF (EWZ).

Strip out the WisdomTree India Earnings Fund (EPI) and the major BRIC ETFs have again been duds in 2014 as EWZ, the Market Vectors Russia ETF (RSX) and the iShares China Large-Cap ETF (FXI) are down an average of 13.3%. [India ETFs are BRIC Leaders]

The struggles of BRIC ETFs come as the group struggled mightily in two of the past three years. Those struggles also shine the light on concept being offered by some new ETFs: Ditching BRICs while keeping emerging markets exposure. One of those ETFs is the SPDR MSCI EM Beyond BRIC ETF (EMBB) . EMBB, which debuted in December 2013, is off 1.5% year-to-date, better than the losses of more than 3% for the Vanguard FTSE Emerging Markets ETF (VWO) and the iShares MSCI Emerging Markets ETF (EEM) . [Maybe a Catalyst for Emerging Markets ETFs]

“ Excluding the BRIC countries allows for investors to tilt portfolios toward sectors more exposed to local economies, such as consumer discretionary, and away from sectors that are more tied to broader global growth rates and commodity prices, such as energy,” said State Street Global Advisors Vice President and Head of Research in an interview with ETF Trends.

While financial services is EMBB’s top sector weight at 27.3%, often the hallmark of many diversified emerging markets ETFs, the fund does devote a combined 20% of its weight to consumer discretionary and staples names. Additionally, EMBB’s second-largest weight is a 14% allocation to technology, the sector that offered the highest level of out-performance of the MSCI Emerging Markets Index in the three-year period ending Dec. 31, 2013. [Emerging Markets Value Bets]

“Investing in emerging markets beyond the BRICs offers the ability to take advantage of greater future growth opportunities outside of the BRICs. Smaller emerging market countries have many of the characteristics that the BRICs had 10 years ago including a rapidly growing middle class, increased political stability and increasingly sophisticated financial markets,” said Mazza.

Excluding BRIC nations does not mean increased risk. In fact, EMBB could, over time, damp volatility due to its combined 30% weight to Taiwan and South Korea. Those are two of the most advanced, lowest beta emerging markets. The tech-heavy iShares MSCI Taiwan ETF (EWT) is up 1.5% this year, a respectable performance among single-country emerging markets ETFs. South Korean shares have recently perked up as the iShares MSCI South Korea Capped ETF (EWY) is higher by nearly 4% since the start of February.[South Korea Still Offers Opportunity]

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