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This ETF Is a 'BRIC' House

Our conclusion in presenting the accompanying list of ETFs with the highest possible grades of A+ from Ratings is this: Knowing when to get out is as important as getting in.

The Claymore/BNY BRIC ETF (EEB) spreads its investments among the "BRIC" nations -- Brazil, Russia, India and China. In addition to geographic diversification, its holding offers diversity in investments, ranging from resource-rich Brazil and Russia to English-capable, tech-savvy India and manufacturing powerhouse China.

Funds focusing on the BRIC countries have been going great guns in recent years. While EEG has surrendered 14.59% during the first quarter, it is still priced at more than double its level of a year and a half ago and trading at close to 20 times the weighted average earnings of its portfolio holdings.

Secular growth in the quartet of nations in which EEB invests might provide for substantial long-term returns. But these are still emerging markets, which are certain to experience severe bumps along the way. The credit crunch and the attendant economic contraction in the U.S. -- a major customer of BRIC output -- will have an impact on the fund.

While some commentators feel that the decline of the U.S. dollar vis-à-vis most other currencies has run its course and might even reverse, many still believe that China's renminbi will be allowed to appreciate more against the greenback. A 5%-to-10% secular rate of gain by the currency would provide a tailwind for Chinese shares -- and funds such as EEB that hold them.

The Consumer Staples Select Sector SPDR ETF (XLP) slipped only modestly lower during the first quarter of the year. Still, its 2.76% slide was far less severe than the S&P 500 total return index's 9.45% thumping for the period.

The fund's 6.88% gain over the past 12 months is modest in absolute standards, but mildly impressive when contrasted with the 5.08% setback suffered by the S&P over the period.

Most importantly, XLP provides some potential insulation for investors against the economic downturn that economists are forecasting -- and many feel that we have already entered. A recession, and especially one coincident with a credit crunch and high energy prices, will dampen demand for discretionary goods like luxury SUVs and big-screen TVs. But consumer staples such as food should be among the least damaged areas in a downturn, even if it turns into a prolonged slump with a sluggish recovery.

The iShares MSCI Pacific ex-Japan ETF (EPP) gives additional weight to Asia when combined with the Claymore/BNY BRIC fund. But the phrase "Asian century" is appearing more frequently in the business and economic press.

Whereas the above EEB "BRIC" fund's holdings includes investments in the emerging Asian economies of India and China, EPP's portfolio is concentrated in the more mature economies of Australia, Hong Kong, Singapore and New Zealand. Thus, EEB and EPP combine to provide broad coverage of that part of the world.

EPP's investments in resource-abundant Australia provides the fund's holders with exposure to the commodity play of a major supplier of raw materials to Asian industry.

With world's industrial production gravitating to Asia and GDP per capita in most nations in the region still only a fraction of that in the major Western countries, the potential for long-term growth there is enormous. But, like the BRIC fund, EPP is likely to encounter its share of painful setbacks.

The PowerShares DB Agriculture Fund (DBA) is enjoying the ride during the current commodities boom. But unlike funds heavily invested in industrial commodities, the "consumer staple" nature of food is potentially less susceptible to the air pockets that can crush those who go long on industrial and collectable fungibles.

The PowerShares DB Commodity Index Track (DBC) is for those willing to speculate that the commodities run-up still has a way to go.

In addition to the agricultural commodities of corn and wheat, DBC is linked to the booming prices of crude oil and heading oil. It is also in the volatile gold market. But investors treading in commodities should remember that when an investment concept begins to seem irresistible, it is frequently the ideal time to get out. Ratings Top-Rated ETFs to Consider Now
Claymore/BNY BRIC ETF (EEB) A+ Non-US Equity -14.59 45.61 0.5 0.64
Consumer Staples Select Sector SPDR (XLP) A+ Growth - Domestic -2.76 6.88 2.1 0.23
iShares MSCI Pacific ex-Japan (EPP) A+ Non-US Equity -12.12 5.71 5.3 0.50
PowerShares DB Agriculture Fund (DBA) A+ Equity Income 10.49 46.68 0.0 0.75
PowerShares DB Commodity Idx Track (DBC) A+ Equity Income 13.34 44.36 0.0 0.75

For an explanation of our ratings, click here.
Source: Ratings - Data as of 3/31/2008.
Richard Widows is a senior financial analyst for Ratings. Prior to joining, Widows was senior product manager for quantitative analytics at Thomson Financial. After receiving an M.B.A. from Santa Clara University in California, his career included development of investment information systems at data firms, including the Lipper division of Reuters. His international experience includes assignments in the U.K. and East Asia.

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DBA $19.92 0.00%
DBC $12.53 0.00%
EEB $21.41 0.00%
EPP $34.51 0.00%
XLP $49.63 0.00%


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