Market Overview

ETFs For The BRICS Summit (EEB, EZA, EMT)


The leaders of the BRICS countries – Brazil, Russia, India, China and South Africa – are meeting in India this week for the fourth BRIC summit. At the confab, leaders will talk trade, global governance and other issues relevant to the fast-growing quintet.

In a world littered with emerging markets acronyms BRICS is one of the newer ones because South Africa wasn't included until late 2010. Still, the original BRIC quartet has seen its aggregate GDP soar to between $11 trillion and $12 trillion in 2010 from $3 trillion in 2001, according to Jim O'Neil, a senior Goldman Sachs economist, who coined the term "BRIC."

There's no doubt the BRICS are major players on the global economic stage and will remain so for years to come, but as represented by the hundreds of ETFs tracking these countries, the group is still high risk/high reward for investors. Recent volatility among BRICS ETFs underscores that notion.

Let's catch up with some of the BRICS ETFs right now...

iShares MSCI South Africa Index Fund (NYSE: EZA) South Africa is commodities-driven economy and the precious metals trade has been of some help to EZA this year, but the ETF is being drubbed today. Prior to the start of trading Wednesday, EZA was up almost 14% to start the year, but all is not well in South Africa.

Earlier this year, iShares' Russ Koestrich said "South African equities are relatively expensive compared to other emerging markets" and "certain economic conditions in South Africa aren't all that great" while noting the country has somewhat high inflation.

EGShares Emerging Markets Metals/Mining ETF (NYSE: EMT) While there isn't a BRICS ETF by name, the unheralded EGShares Emerging Markets Metals/Mining ETF is in fact a BRICS as that quintet accounts for over 81% of the fund's country weight with Mexico, Indonesia and Poland representing the rest. If the aforementioned comments about South Africa prove accurate, that could hamper EMT as that country accounts for 26.8% of this ETF's weight.

EMT's beta is nearly 2.3, so it's not an ETF for the faint of heart. The chart isn't particularly strong here, but if the ETF does tumble all the way back to $14, that's a solid buy point. Or wait for a strong volume push above $18.

EGShares GEMS Composite ETF (NYSE: AGEM) Another ETF that technically isn't a BRICS ETF, but really is as those five countries represent 76.6% of this ETF's weight. AGEM is a smaller rival to the iShares MSCI Emerging Markets Index Fund (NYSE: EEM) and the Vanguard MSCI Emerging Markets ETF (NYSE: VWO). Though no one has mentioned it, AGEM has slightly outperformed those funds this year.

Guggenheim BRIC ETF (NYSE: EEB) A rival to the iShares MSCI BRIC Index Fund (NYSE: BKF), the Guggenheim BRIC ETF is larger than many folks realize with $457.3 million in AUM, though that's a $40 million decline since early November 2011. This isn't a BRICS ETF as South Africa is not included and it's really not a BRIC ETF as Russia only accounts for 1.87% of EEB's weight. EEB is really about Brazil, which accounts for almost 56% of the fund's weight. China and Hong Kong combine for another 32%.

Translation: EEB is a fine idea when the world feels bullish about the Chinese economy, especially because China is Brazil's top export destination. Unfortunately, there are too many concerns about a Chinese hard landing right now to be overtly bullish on EEB.

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