Invest In A BRIC ETF For Long-Term Growth?

Jim O’Neill coined the term BRIC (Brazil, Russia, India, China) in a report for Goldman Sachs. He claimed, as did further research that the four emerging markets in the BRIC would eclipse today’s wealthiest nations by 2050. An ETF (Exchange Traded Fund) is a grouping of stocks compiled beneath an umbrella and sold in individual shares. The best way to understand it is to think of a blender.

If stocks are carrots, and cucumbers, strawberries and melon wedges, the blender is the ETF. The creators of the ETF throw carrots, cucumbers, berries and melons all into the blender, pulse it to a puree and pour out little cups of financial smoothies. Investors buy the smoothies as a new, single entity. The ETF is then traded based upon its component value (though as a package they can be less or more profitable than their individual components at times).

With this background knowledge, the BRIC ETF can be discussed. BRIC ETFs are stock packages from the four countries in BRIC blended and sold as one. They are a popular investment for many traders, while many others prefer to invest in a single country’s ETFs. The idea of working with these investments is that each emerging nation in the ETF is tracking similarly financially. The diversity of the fund is seen to keep investors safe while still owning a part of an emerging market ETF.

Only experienced traders are willing (smartly so) to deal with emerging market ETFs, especially when it is a single nation, since political, social and geographical factors may affect the performance of the fund. The point of BRIC was make these risky, single entities, safer. However, as stated, some debate surrounds the effectiveness of the method. Individually, each market varies too much to be grouped as one. To consider the pros of these BRIC ETF funds, a potential buyer should consider the effect of opposing forces.

The safety of the investment is bound up by multidirectional investment. For example, if Russia’s economy suffers but China’s thrives, then the funds will balance one another. The larger pull forces”theoretically”make the fund safer. However, the same applies to the gains. If one country soars but the other three lag, the whole package cannot gain profit. By March 2010, the BRIC ETF in every application was down nearly 1%, it has continued to drop, with moderate fluctuation throughout the year. Supporters point to the success and rising of each nation as proof that the outlook will be better. Opponents cite the drastic variation of international growth, speed and stability and point to the differences in each country’s rate of economic expansion as a reason not to invest in these funds.