More and more people are realizing that there are great fortunes to be made in developing nations. Emerging markets such as Brazil, Russia, India and China (often referred to collectively as "BRIC") are giving investors serious returns, and an investment vehicle such as an exchange-traded fund (ETF) makes it easier than ever to invest overseas.
What's So Great About BRIC?
A few years ago,
determined that the economies of Brazil, Russia, India and China were set to start growing at warp speed -- bound to eclipse the growth rates of most developing (and some developed) nations within the next couple of decades. Ever since then, the big investable idea has been that Brazil, Russia, India and China are pretty good places to invest your money if you want to cash in on that growth.
Now, Why ETFs?
ETFs are index funds that trade on exchanges the same way that stocks do. An ETF can make buying into hundreds of companies as easy as buying stock in one company. This simplicity means a lot when you're thinking about buying foreign investments. (To learn more about ETF investing, visit the
ETFs have a lot more access to foreign stocks than most individual investors do. Since many companies abroad only trade on their home exchanges, they're somewhat out of reach (see
"How Do I Invest Overseas?"). ETFs, though, can purchase stock in companies abroad, and then be purchased themselves here at home. Also, all of the legal wrangling (such as taxes, tariffs and local investment regulations) is taken care of by the ETF.
ETFs also provide an additional layer of protection, because they're managed by professional fund managers who have experience with international investments. Since financial regulations can be iffy in emerging markets, American investors tend to welcome the expert oversight.
The BRIC ETF Play
You can barely turn on
without hearing about one of the BRIC countries. Politics and international economic policy have driven a lot of media interest, which has certainly helped make appeal of BRIC investing much more mainstream of late. And that appeal is warranted. For example,
Claymore's BRIC ETF
has returned 60% since last September, almost four times what the always popular
S&P 500 ETF
has brought in.
Additionally, many investors have turned to BRIC ETFs as a way of hedging (protecting themselves) against a declining U.S. dollar.
: This country is probably the least discussed of the pack. While the other BRIC members have been in the crosshairs of popular media pundits, Brazil's economy has been quietly plugging away. Since March, the Dow Jones Brazil Index has brought in 26%.
Brazil has the largest economy in Latin America, an area whose regional funds have been crushing the competition (
"Top ETFs Have a Latin Flavor"). Brazil's investors are dancing the samba all the way to the bank (see
"ETF Offers a Taste of Investing in Brazil").
: The Russian economy has taken its share of bumps and bruises (or merciless beatings, depending on your viewpoint) since the fall of the Soviet Union in late 1991. In 1998, the Russian economy collapsed after the devaluation of the ruble. This led to an interesting situation for investors: A massive market move to get out of Russian investments pushed their market values well below what they were worth.
Today, investors have been reaping the benefits as Russia's vast resources (particularly in commodities) have grown the economy substantially over the past several years. With immense oil reserves and high gas prices (that make me cringe on a daily basis), Russia is in an enviable position for the foreseeable future. Remember, though, that Russia's checkered past puts it at a higher risk level than some of its BRIC peers (see
"ETFs for Exposure to Emerging Russia") .
: If you've ever had to call tech support, you've probably got an idea of just how far India has come as a service economy. The country's low-earning yet highly educated population has proved to be a real asset for America's outsourcing needs, and a burgeoning middle class full of entrepreneurial-minded Indians has been the result.
While typically known for its manufacturing (mainly textiles), India's ascension to a service-based economy is helping Indian funds deliver annualized returns well into the double digits (see
"'BRIC' ETF Investing: Getting Started in India").
: Of the four BRIC countries, China would have to be the biggest "it" investment right now. As the Chinese economy becomes more and more open, lots of solid investment opportunities are coming about. As with the other countries in the group, much of China's economic growth can be attributed to a new middle class that is helping the country to become more self-sufficient and less reliant on the Western consumer. Even so, manufacturing exports remain a mainstay of the Chinese economy (see
"'BRIC' ETF Investing: Getting Started in China").
As a group, Chinese stocks are enjoying a bull run. Since January, the Dow Jones Shanghai Index has returned over 115%. Enough said.
Getting Started With BRIC ETFs
While each of these countries have American depository receipts (ADRs) that trade here in the U.S., an ETF is far and away the simplest way to buy into BRIC.
Typically, the way to invest in BRIC is by buying an "emerging-markets ETF" that focuses on a region of the BRIC foursome that you're interested in. This way, if you're big on China but less bullish about Russia, you can focus mainly on ETFs whose portfolios are weighted more heavily in that direction. For a look at some funds as well as their BRIC breakdowns, check out "
The BRIC is Back."
Researching BRIC ETFs
It's a good idea to look into the ins and outs of your potential BRIC ETF investment a little more carefully than you would a domestic ETF. That's because investing in a BRIC index carries with it some unique risks.
With BRIC investing, the political climate is of particular significance. While this is true of most foreign investments, countries like China are in an elevated position on the world stage. While this global attention can be a bad thing, it has seemingly been more beneficial of late.
BRIC ETFs aren't fundamentally different from any other exchange-traded fund. You'll still want to take the time to analyze the investment information available to make sure that a given BRIC ETF makes sense for your portfolio. (To learn more about what to look for when you research an ETF, visit the
The BRIC Oven
BRIC ETFs are definitely hot right now, and they don't show any signs of cooling down. Investors are pouncing on the opportunity to expand their portfolios with the world's big four growth economies all wrapped up in the simple package that an ETF provides.
While those potential returns come with added risk, if recent history is any indicator of where these markets are going, the future looks pretty bright for BRIC ETFs.
Jonas Elmerraji is the founder and publisher of Growfolio.com, an online business magazine for young investors.