In 2012, all three BRIC ETFs are in positive territory despite concerns of an economic slowdown in China and India. Of note however, is the lag in performance of one of the BRIC ETFs, EEB. EEB breaks the BRIC mold in a number of ways, some of which will serve as a surprise to many.
Short Term Performance
First EEB has significantly lagged the two other BRIC ETFs, BKF and BIK year to date. Take a look at the 2012 performance bar chart below of the Guggenheim BRIC ETF versus the iShares BRIC ETF and the SPDR BRIC ETF. This graph is from stockcharts.com.
The iShares and SPDR BRIC ETFs have both gained close to 7.5% for the year while the Guggenheim BRIC has gains of just 5.8%. This is a 170bps difference in under 5 months. How could there be such a discrepancy between the performance in EEB and the two other BRIC ETFs? Let's examine the index.
Here's the EEB fund and index description via its website with emphasis added by me in bold:
The Guggenheim BRIC ETF, seeks investment results that correspond generally to the performance, before the Fund's fees and expenses, of an equity index called BNY Mellon BRIC Select ADR Index. The Fund will invest at least 90% of its total assets in American depositary receipts ("ADRs") and global depositary receipts ("GDRs") that comprise the Index and underlying securities representing ADRs and GDRs that comprise the Index.
Simply put, this index is foremost focused on BRIC ADRs and GDRs which breaks the conventional BRIC mold. Because the availability of a security type (depositary receipts) primarily drives the eligibility of holdings, country weights just happen to occur as we see below. This data is from EEB's website.
Now, if you are bullish on Brazil the weights above are perfect. However, if you are bullish on the BRIC concept, it might surprise you to own a BRIC ETF with less than 2% in Russia and just 10% in India. Unfortunately for the $435 million of investor assets in EEB, this current tilt has materially underperformed the other BRIC ETF products in 2012.
Long Term Performance
To some, EEB breaks the promise of what an ETF focusing on BRIC countries ought to be. To others who examine the index methodology and watch the underlying country weightings change, EEB can present interesting tactical opportunities to employ substantial tilts in the BRIC countries from time to time.
After all, a comparison from the March 2009 market lows until today actually shows EEB as the best performing BRIC ETF.
However, once again breaking the BRIC mold, EEB is the only BRIC ETF with outflows during the time period illustrated above. Here's the graph from the Fund Flow Tool at IndexUniverse.com.
A Real BRIC Breaker
EEB is a BRIC breaker in areas like short and long term performance, index methodology, country exposure and money flows. It is a timely example of the importance of analyzing more than the name, expense ratio, volume and AUM of an ETF. By fully understanding the index and the underlying holdings derived from it, investors can take advantage of or avoid ETFs like EEB that deliver exposure which might not match convention.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.