When the year began there was only one ETF available for investors that wanted to gain exposure to the BRIC (Brazil, Russia, India, China) countries with one purchase. Claymore introduced the Bank of New York BRIC ETF (NYSEARCA:EEB) in September 2006 and since that time the ETF has attracted quite a bit of attention. Through nearly 11 months of the year the ETF is up over 60% as the US market struggles to hold onto any gain.
In June, the SPDR S&P BRIC 40 ETF (NYSEARCA:BIK) began trading and was seen as the first competitor to EEB. Since its inception the ETF has enjoyed solid returns, but has not caught up to EEB in shares traded daily. Last week the third BRIC ETF hit the market when iShares launched the MSCI BRIC Index ETF (NYSEARCA:BKF). So far the ETF has only traded a few thousand shares per day, but it is too early to be concerned.
Now that there are three BRIC ETFs for investors to choose from, which is the best choice?
Fees are always important to keep an eye on, but when all three ETFs are separated by 25 basis points annually, it becomes a secondary concern. For your own knowledge here are the expense ratios: BIK 0.5%, EEB 0.6%, BKF 0.75%.
The most important factor for me when analyzing this type of ETF is the allocation. BIK is composed of only 40 stocks and the top 10 make up 55% of the portfolio. The country breakdown looks like this: China 44%, Brazil 26%, Russia 25%, and India 6%. It is clear China is over weighted while India has almost zero exposure. The high concentration in the top 10 and underexposure to India make BIK the least attractive of the group.
EEB has more stocks in its portfolio (75), but the country breakdown is once again an issue. Brazil makes up 46%, followed by 39% in China, 11% India, and 4% Russia. With 85% of the allocation in Brazil and China, EEB does not give investors an accurate route into the BRIC countries. The other concern is the 57% weighting of the top 10. Where is the diversification?
Finally iShares appears to have gotten this thing right. BKF is made up of 124 stocks with the top 10 only accounting for 36% of the entire portfolio. The most attractive feature is the country weightings: China 36%, Brazil 28%, Russia 20%, and India 16%. BKF is the only ETF of the three that has double-digit weightings for every country. Despite its higher expense ratio, BKF would be my choice for new investors looking to gain exposure to the BRIC countries.