3 ETFs For a BRIC Bounce

August 12, 2013 12:20 pm
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Emerging markets investors not residing in caves or under large rocks know at least one thing about ETFs this year: The funds offering exposure to the BRIC nations have been dismal performers. In the fight for the best BRIC ETF among the four major country-specific funds are the iShares China Large Cap-ETF (NYSE: FXI) and the Market Vectors Russia ETF (NYSE: RSX). Both funds are down more than 12 percent year-to-date.

The iShares MSCI Brazil Capped ETF (NYSE: EWZ) and the WisdomTree India Earnings ETF (NYSE: EPI) are down an average of nearly 20 percent, nearly double the 9.8 percent loss for the Vanguard FTSE Emerging Markets ETF (NYSE: VWO).

Related: More Misery Ahead For India ETFs.

It might be hard to imagine things getting much worse for BRIC ETFs, but things are starting to look up for some marquee BRIC funds, particularly on a technical basis. Should further confirmation avail itself, investors will want to get to know these multi-country ETFs.

Guggenheim BRIC ETF (NYSE: EEB)
The Guggenheim BRIC ETF tracks the BNY Mellon BRIC Select ADR Index, meaning investors get an ETF that holds 80 stocks that trade on U.S. exchanges. As is the case with nearly every other multi-country emerging markets ETF, EEB is home to plenty of downtrodden BRIC stocks. In this case, it is energy names. Plenty of them.

EEB has a 23.3 percent weight to that sector and that, of course, means ample exposure to beaten up state-controlled enterprises. EEB is up nearly three percent in the past week and is peaking through some horizontal resistance at $33. In order for the run to continue, the fund will need to get some help from stocks such as Petrobras (NYSE: PBR) and PetroChina (NYSE: PTR).

On that note, it is worth mentioning EEB is 70 percent allocated to Brazil and China. India and Russia combine for just over 13 percent of the fund’s weight.

As is the case with EEB, the iShares MSCI BRIC ETF devotes most its weight to China and Brazil. In this case, over 69 percent, though India and Russia combine for over 28 percent. BKF’s largest sector weight is a 31 percent allocation to financial services and while financials being the biggest sector weight in an emerging markets ETF is no surprise, it is an important factoid in evaluating BKF’s potential as a medium-term investment.

Russian banks have been reluctant to embrace President Vladimir Putin’s plans for Russian firms to payout 25 percent of net income in dividends. On the other hand, Brazilian financials are one of that country’s better dividend opportunities.

BKF is up 2.3 percent in the past week and needs to breakthrough $36 to get new buyers excited.

Do not buy the SPDR S&P BRIC 40 ETF if you are looking for India exposure as the “I” in BRIC represents less than seven percent of the fund’s weight. Do buy BIK if you want emerging markets financial services and energy sector exposure as those groups combine for nearly two-thirds of the ETF’s weight.

BIK does offer a compelling kicker as 13 percent weight to the technology sector, most of which goes to Chinese tech stocks the top-performing Chinese sector this year. Forgive BIK for fibbing. It is not home to 40 stocks, but 44. The fund is cheap relative to the broader emerging markets universe with a P/E ratio of just 7.6. The dividend yield is decent at 3.2 percent.

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