Low-Volatility ETFs Are a Sign of the Times
NEW YORK ( TheStreet) -- In 2001, an economist coined an acronym that typified investing in the initial decade of this century. Indeed, "BRIC" became part and parcel of our vocabulary.
BRIC refers to four of the largest economic powerhouses in the emerging world: Brazil, Russia, India and China. And for investors, it became a must-know concept for success in the 2002-2007 global bull market.
A variety of BRIC ETFs were introduced in that time, including Guggenheim BNY BRIC (EEB), iShares MSCI BRIC (BKF) and SPDR S&P BRIC 40 (BIK). We even watched combo vehicles make their way to the table such as First Trust Chindia (FNI).
Investors quickly bought into the notion that -- with 40% of the world's population residing in these four countries alone -- the global growth potential would translate into remarkable investing gains. And for the better part of 2002-2007, the theory held true. By the same token, lumping the Big Four into a single entity ignored unique circumstances within the individual countries. Countries like Russia were dependent on oil exports, while Brazil became one of China's largest raw materials suppliers. Meanwhile, many overestimated the rate at which export-driven economies would transition into middle class consumption-oriented economies. And few BRIC advocates had anticipated the ways in which different cultures would respond differently to global shocks. It follows that the October 2007 to March 2009 bear market decimated portfolios with large BRIC exposure. Moreover, BRICs have severely underperformed in the 2009-2012 period. The consequence of greed -- of earning more through BRIC-heavy portfolios -- has been significant underperformance over the last five years. What's more, the ETFs themselves have been less successful in terms of investor interest via waning assets under management.
|The BRICs in Your Wall Over the Last Five Years|
|5 Year %|
|iShares MSCI BRIC (BKF)||-30.2%|
|Guggenheim BRIC (EEB)||-27.6%|
|SPDR S&P BRIC 40 (BIK)||-24.9%|
|S&P 500 SPDR Trust (SPY)||6.7%|
|Low-Volatility ETFs in 2012|
|2012 YTD %|
|MSCI Emerging Markets Minimum Volatility (EEMV)||14.9%|
|MSCI All World Minimum Volatility (ACWV)||9.6%|
|MSCI USA Minimum Volatility (USMV)||9.4%|
|PowerShares S&P Low Volatility (SPLV)||6.6%|
|S&P 500 SPDR Trust (SPY)||13.9%|
|Dow Industrials Trust (DIA)||8.5%|
|Vanguard Emerging Markets (VWO)||10.6%|
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