This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

ETF Space Grows Far Beyond BRICs

NEW YORK (TheStreet) -- In the last few months ETF investors have learned a new emerging market term, beyond BRICs, which refers to the new wave of fairly broad emerging markets funds that eschew Brazil, Russia, India and China -- as the latest thinking is that the BRICs are now correlating too closely to developed markets which will result in less promising growth.

The increased correlation is one of the reasons that StateStreet just launched a third ETF to market SPDR EM Beyond BRIC ETF (EMBB)

The idea of moving beyond BRICs is to move to countries that are lesser known, as the BRICs were 10 years ago, to capture growth that hopefully equals the BRICs' performance from back then. For example the iShares MSCI Brazil ETF (EWZ)

Both BBRC and EMFM capture that potential with their respective constituencies but the new SPDR fund is far less effective at going beyond the BRIC markets. The problem is: EMBB allocates 15% each to South Korea and Taiwan. Index provider FTSE considers South Korea to be a developed market and in recent years Emerging Global has excluded Taiwan from its funds because it does not consider Taiwan to be an emerging market.

The other countries in the fund generally make sense with South Africa at 14% of the fund, followed by Mexico at 13%, and Malaysia at 10%. Both BBRC and EMFM include some frontier market exposure but EMBB does not.

At the sector level, EMBB is heaviest in financials at 27%, followed by tech at 13% and materials at 10%. EMBB's literature notes that part of the theme is an emerging middle class in these countries, with newly earned discretionary income -- which is why the fund is slightly more exposed to the telecom, consumer staples and consumer discretionary sectors versus the MSCI Emerging Markets Index. EMBB allocates 9% to those three sectors which is indeed slightly more than the MSCI Emerging Markets Index which is of course tracked by the iShares MSCI Emerging Markets ETF (EEM)

Consumer demand and growth of discretionary spending have been major drivers at Emerging Global, and anyone attracted to the idea of investing in the emerging consumer should know that BBRC allocates 8% to discretionary, 12% to staples and 18% to telecom.

As I have mentioned in previous articles, the biggest fundamental risk factor for all three funds is their relatively large exposure to South Africa -- all three funds have a mid-teens weighting. Barron's reported that South Africa's budget deficit has grown to 6.8% of GDP while its currency is down 22% in 2013. The driver behind weak data has to do with overall weakness in the mining industry. South Africa, of course, supplies much of the world's gold and platinum. Both have been down a lot this year with limited prospects for a turnaround soon.

In thinking about the reasons to invest beyond the BRICs, where BBRC and EMFM offer exposure to less widely held and less widely followed markets, EMBB seems to just exclude the BRICs.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,979.13 +59.54 0.35%
S&P 500 1,986.51 +4.91 0.25%
NASDAQ 4,526.4820 -1.0320 -0.02%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs