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BRIC ETF BKF Sees Record Inflows

Shubham Jaipuria

BRIC nations are gaining traction as investors look to emerging markets amid increased uncertainty surrounding President Trump’s protectionist agenda. The economic turnaround in Russia and Brazil may be one of the reasons for investors to focus on BRIC equity funds. Rising consumer confidence in India following a key state victory for the Prime Minister’s political party also seems to be a factor contributing to fund inflows. Let’s now discuss about the four component nations of the BRIC block.


Brazil seems to be finally emerging out of recession, as it recorded a $7.1 billion trade surplus in March 2017, the highest since 1989. Brazil Composite PMI rose to a 25-month high of 48.7 in March 2017 from 46.6 in February. However, a recent scandal involving the export of expired meat posed a threat as daily exports fell from $63 million to $74,000. The iShares MSCI Brazil Capped ETF EWZ has seen net inflows of $927.75 million in the year-to-date time frame (as of April 10, 2017).


Russia is out of recession, owing to the re-classification of military spending and rising oil prices. The Russian economy is heavily dependent on the energy sector. Oil and gas contributed 40% of Russia's budget revenues in 2016. Though the economy was recently in the news for multiple political rallies against state corruption, investors seem to be betting big on the nation’s future prospects. Russian Composite PMI was 56.3 in March 2017, up from  55.4 in February. The iShares MSCI Russia Capped ETF ERUS has seen net inflows of $107.21 million in the year-to-date time frame (as of April 10, 2017) (read: Russian ETFs in Focus Amid Increased Political Tensions).


Consumer confidence in India rose to 136 in the fourth quarter of 2016 from 133 in the third quarter. A victory for the ruling party in a key state election bodes well for this emerging market nation. India’s composite PMI increased to 52.3 in March 2017 from 50.7 in February. The iShares MSCI India ETF INDA has seen net inflows of $447.42 million in the year-to-date time frame (as of April 10, 2017) (read: India ETF (PIN) Hits New 52-Week High).


China’s composite PMI declined to 52.1 in March 2017 from 52.6 in February. However, as per economists, China's GDP is likely to grow 6.8% in the first quarter of 2017, higher than 6.7% increase in the year-ago quarter. Economists predict that further private sector investments are likely to propel economic growth in the second largest economy in the world. President Trump’s trade stance with China still remains uncertain. We note that the leaders of the two nations worked to strengthen relations in their Florida summit at the end of the first week of April 2017. iShares China Large-Cap ETF FXI has seen net outflows of $78.27 million in the year-to-date time frame (as of April 10, 2017) (read: What China ETF Investors Should Watch for in Trump-Xi Summit).


We will now discuss about a broad BRIC-based ETF, BKF.


iShares MSCI BRIC ETF BKF


This fund offers exposure to the BRIC nations of Brazil, Russia, India, and China, with 16.09%, 7.91%, 18.72%, and 55.74% allocation, respectively (as of April 7, 2017).  BKF recorded net inflows of $72.7 million in the week ending April 7, 2017.


The fund has AUM of $280.53 million and charges 72 basis points in fees per year. Financials, Information Technology and Energy are the top three sectors, with 28.47%, 19.47%, and 11.77% allocation, respectively. From an individual holding perspective, Tencent Holdings LTD, Alibaba Group Holdings, and China Mobile LTD are the top three holdings of the fund, with 7.88%, 5.85%, and 3.33%, allocation respectively (as of April 7, 2017). The fund has returned 13.96% in the year-to-date time frame (as of April 10, 2017) and 20.26% in the past one year. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.


We will now compare the performance of BKF to the largest ETF, SPY.


SPDR S&P 500 ETF SPY


This is the most popular and actively traded ETF in the world, tracking the S&P 500 index.


It has AUM of $233.84 billion and charges a paltry fee of 9 basis points a year. Information Technology, Financials, and Health Care are the top three sectors, with 22.10%, 14.26%, and 13.94%, allocation respectively. From an individual holding perspective, Apple Inc. (AAPL), Microsoft Corporation (MSFT), and Amazon.com Inc. (AMZN) are the top three holdings of the fund with 3.72%, 2.51%, and 1.75% allocation, respectively (as of April 7, 2017). The fund returned has returned 5.28% in the year-to-date time frame (as of April 10, 2017) and 14.29% in the past one year. It has a Zacks ETF Rank #3 with a Medium risk outlook.

 
Source: Yahoo Finance


To Conclude


Therefore, it is evident that the BRIC ETF has significantly outperformed SPY both in the year-to-date time frame and in the past one year. Recent turbulence in the markets owing to President Trump’s healthcare bill failure has made emerging market investments more attractive. However, the possibility of further interest rate hikes and uncertainty surrounding Trump’s policies make it difficult to predict the near-term prospects of these nations.


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SPDR-SP 500 TR (SPY): ETF Research Reports
 
ISHARS-CHINA LC (FXI): ETF Research Reports
 
ISHARS-BRAZIL (EWZ): ETF Research Reports
 
ISHARS-M INDIA (INDA): ETF Research Reports
 
ISHARS-MS RUSSA (ERUS): ETF Research Reports
 
ISHARS-MSCI BRC (BKF): ETF Research Reports
 
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