How to Invest in BRIC Country Mutual Funds

BRIC economies are becoming powerhouses.

BRIC economies are becoming powerhouses.

"BRIC" stands for Brazil, Russia, India and China. It is a term coined by Goldman Sachs economist Jim O’Neill in 2001 to refer to the economies he believed would be the world’s best performers for the next several years. As the idea behind the term caught on, many mutual funds began to offer ways to invest in these countries.

Overexposure

Most individual investors in the United States limit their investment in the stock market to U.S. companies and a few large international companies that may trade on U.S. markets, such as the New York Stock Exchange or NASDAQ. But by limiting their portfolio to the United States, investors run the risk of overexposure to a single economy. During the 2000s and after the financial crisis, many smaller economies grew faster than the United States during the latter's recessions in 2001 and 2007-09, according to the National Bureau of Economic Research. China, for instance, saw its economy grow by a blistering 10.4% in 2010, while the United States grew by only 2.4% during the same year, according to the CIA's World Factbook. By exposing yourself to other countries, even if your U.S. stocks aren’t doing great, you might still get a high overall growth rate.

Traditional Mutual Funds

Most investment brokerages, such as Fidelity and Vanguard, offer mutual funds that can provide broad exposure to the BRICs. Some funds focus on one country, such as ING’s Russia Fund, while others might focus on all of the BRICs, such as Templeton’s BRIC fund. Many IRA programs allow you to transfer part of your retirement fund into BRIC funds, and might even waive their rules on minimum levels of investment.

ETFs

You don’t have to invest in just mutual funds to get into BRICs. ETFs are also available. ETFs are like mutual funds, except that shares in the fund are traded on the open market like shares of any other company. ETFs such as iShares MSCI Brazil ETF can provide a little more flexibility and liquidity than mutual funds if you decide you want to buy into or sell out of the BRICs quickly.

Falling BRICs

Something else to consider is whether you want to invest in BRICs at all. Despite what the name suggests, the four economies that make up BRICs have little in common. Just because all four economies were growing when the term was coined in 2001 doesn’t imply that they’re still good investments today. According to the CIA's World Factbook, while Brazil’s economy grew 7.5% in 2010, it grew only 0.9% in 2012, and Chinese economic growth fell from 10.4% to 7.8%. BRIC economies, particularly Russia, can also be extremely volatile, according to Melissa Joy, director of investments and client services at the Center for Financial Planning. That volatility can cause huge swings in the returns on BRIC funds. Templeton’s BRIC fund, for example, fell more than 12% in the year ending in the first quarter of 2013, according to the fund's website.

 

About the Author

Jake Costa has been a reporter and editor since 2003. Among other topics, he has covered business, finance, science, technology and the environment. He has written for "The Financial Times," Environmental Leader, "Latin Finance" and Sybase. He has a Bachelor of Arts in literature from the University of Michigan.

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