Brazilian ETFs: Best of the BRIC Countries

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Includes: BKF, BRF, EWZ, FXI, INP, RSX
by: Beacon Asset Managers

Investing in the “BRIC” countries – Brazil, Russia, India and China – has certainly proved profitable since the market lows of November, with the primary BRIC exchange traded fund (ETF) - iShares MSCI BRIC Index (NYSEARCA:BKF) - soaring more than 120 percent in just eight months.

With such returns it might be time to consider taking profits (please see our Seeking Alpha article, Time to Take Profits in Emerging Markets?), and seek out potential future performance in this sector by examining the individual BRIC countries and their ETFs.

On a demographic basis we feel that Brazil has the most potential for continued long-term growth. The country has a healthy population of workers and future workers to build the economy and make the country rich before they get old.

Brazil Population

  • 2009 Population: 196.6 million
  • 2025 Estimated Population: 228.8 million (Growth 16.4%)

Brazil Generations

  • Generation X– 1965 to 1984: 72,135,000
  • Generation Y– 1985 to 2004: 73,297,000 (Growth 1.6%)
  • Generation Z (Est.)–2005 to 2024: 70,567,000 (Decline 3.7%)
  • Generation Blend (Est.)–2025 to 2044: 62,888,000 (Decline 10.9%)

2025 Brazil Population Pyramid

We also believe that the Brazilian ETFs, iShares MSCI Brazil Index (NYSEARCA:EWZ) and Market Vectors Brazil Small-Cap ETF (NYSEARCA:BRF), have the most diverse sector weightings in their holdings, and are thus the safest of the individual BRIC country ETFs.

We particularly like BRF because we believe small cap-based ETFs in general have a greater opportunity to outperform over the long run. Given Brazil’s well-developed and expanding manufacturing and service sectors, rapidly growing consumer demand, and healthy demographics, BRF’s focus on companies that serve the Brazil market (as opposed to a reliance on overseas) should prove profitable.

BRF Sector Weightings (as of May 31)

  • Software 2.14%
  • Industrial Materials 17.46%
  • Energy 1.33 %
  • Utilities 10.13%
  • Hardware 0.36%
  • Telecommunications 5.45%
  • Healthcare 4.13%
  • Consumer Services 12.36%
  • Business Services 5.35%
  • Financial Services 16.45%
  • Consumer Goods 24.84%

EWZ Sector Weightings (as of May 31)

  • Industrial Materials 25.98%
  • Energy 15.4%
  • Utilities 4.83%
  • Media 0.59%
  • Telecommunications 5.15%
  • Consumer Services 1.64%
  • Business Services 1.52%
  • Financial Services 21.82%
  • Consumer Goods 4.19%

We believe India also has potential for continued long-term growth based on its demographics. The country has a healthy population of workers and future workers to build the economy and help the country get rich before they get old.

However, India’s demographic profile and future economy are clouded by the vast differences between the northern and southern regions of the country.

India Population

  • 2009 Population: 1,203,250,000
  • 2025 Estimated Population: 1,447,500,000 (Growth 20.3%)

India Generations

  • Generation X– 1965 to 1984: 451,592,000
  • Generation Y– 1985 to 2004: 546,978,000 (Growth 21.1%)
  • Generation Z (Est.)–2005 to 2024: 519,099,000 (Decline 5.1%)
  • Generation Blend (Est.)–2025 to 2044: 435,693,000 (Decline 16.1%)

2025 India Population Pyramid

We believe that the Indian ETF, iShares MSCI India Index (NYSEARCA:INP), has moderately diverse sector weightings, and are thus relatively safe given the continued absence of serious geopolitical concerns.

INP Sector Weightings (as of March 31)

  • Financials 20.0%
  • Technology 14.0%
  • Telecommunications 2.4%
  • Oil 23.4%
  • Basic Materials 8.2%
  • Industrials8.8%
  • Consumer Staples7.9%
  • Consumer Discretionary4.0%
  • Health Care3.9%
  • Utilities7.4%

We believe that China is over-hyped as the cornerstone of BRIC success and that demographics will soon stifle the country’s economy as the number of workers declines and the numbers of elderly swell.

China Population

  • 2009 Population: 1,343,930,000
  • 2025 Estimated Population: 1,1,445,780,000 (Growth 7.6%)

China Generations

  • Generation X– 1965 to 1984: 484,548,000
  • Generation Y– 1985 to 2004: 401,729,000 (Decline 17.1%)
  • Generation Z (Est.)–2005 to 2024: 353,679,000 (Decline 12.0%)
  • Generation Blend (Est.)–2025 to 2044: 304,516,000 (Decline 13.9%

2025 China Population Pyramid

We believe that the primary Chinese ETF, iShares FTSE/Xinhua China 25 Index (NYSEARCA:FXI), is far too heavily weighted in Financials.

FXI Sector Weightings (as of June 30)

  • Financial Services 51.05%
  • Industrial Materials 8.79%
  • Energy 19.29%
  • Utilities 2.3%
  • Telecommunications 15.85%
  • Business Services 2.59%

Russia has one of the worst demographic profiles of the developed and developing world, and is losing population at a devastating rate that bodes a bleak future for its economy.

Russia Population

  • 2009 Population: 141,056,000
  • 2025 Estimated Population: 128,193,000 (Decline 9.2%)

Russia Generations

  • Generation X– 1965 to 1984: 42,371,000
  • Generation Y– 1985 to 2004: 34,148,000 (Decline 19.4%)
  • Generation Z (Est.)–2005 to 2024: 26,092,000 (Decline 23.6%)
  • Generation Blend (Est.)–2025 to 2044: 22,050,000 (Decline 15.5%)


2025 Russian Population Pyramid

We believe that the primary Russian ETF, Market Vectors TR Russia (NYSEARCA:RSX), is far too heavily weighted and dependent upon Oil.

RSX Sector Weightings (as of June 30)

  • Oil and Gas 43.2%
  • Basic Materials 23.9%
  • Financials 8.8%
  • Industrial Materials 8.79%
  • Energy 19.29%
  • Telecommunications 16.6%
  • Consumer Discretionary 3.2%
  • Utilities 2.9%
  • Other 1.4%

Pyramids Source: UN 2007 and Insitut National d"Etudes Demographiques

Disclosure: No current positions