There are those who doubt whether focusing on BRIC—Brazil, Russia, India and China—is still a viable way of thinking about emerging market exposure.
The larger these economies get, some say, the more correlated they become with developed markets, and the less off-the-charts growth opportunities they provide.
But in the past 12 months, it’s BRIC that’s shinning. And not just among emerging markets.
A look at the best single-country ETFs in the past year has Russia, Brazil and China ETFs dominating with impressive performances.
What’s more, many of them aren’t total market, or even large-cap-focused strategies. Their returns point to solid performance among companies that are most in tune with domestic themes and with consumer trends. They also suggest a growth story that’s picking up pace among commodities-rich countries, and enjoying a resurgence of investor confidence.
Here are the top 10 single-country ETFs in the past 12 months:
VanEck Vectors Russia Small-Cap ETF (RSXJ) is up 130.5%
This ETF offers exposure to Russia’s small-cap companies. What’s unique about it is that RSXJ also includes companies domiciled elsewhere, but that generate most of their revenue in Russia. These companies today represent about 20% of the portfolio. Basic materials, industrials and financials are its biggest sector bets.
Like most small-cap emerging market ETFs, RSXJ isn’t cheap. Accessing these corners of the market isn’t all that easy. The fund costs 0.77% in expense ratio, or about $77 per $10,000 invested.
RSXJ came to market in 2011, and it has $107 million in assets. It’s one of only six Russia-focused ETFs in the market today, and the only small-cap Russia fund.
iShares MSCI Brazil Small-Cap ETF (EWZS) is up 123.5%
EWZS offers access to Brazil’s small-cap companies. The weighted average market cap of the 57-holding portfolio is $1.2 billion.
The fund’s market-cap-weighted selection and weighting schemes make it a good representation of the Brazil small-cap universe, but the fund still shows a strong tilt toward a handful of sectors. Consumer discretionary is the biggest allocation, at about 20%. Combined with industrials, consumer staples, utilities and financials, these five sectors represent some 90% of the mix.
The fund also allocates heavily to micro-cap names—almost 30% of the portfolio.
EWZS costs 0.63% in expense ratio, and has $58 million in assets. The fund is the small-cap version of the largest Brazil ETF in the market today, the iShares MSCI Brazil (EWZ), and one of only two Brazil small-cap ETFs in the U.S. market today.
VanEck Vectors Brazil Small-Cap ETF (BRF) is up 110.6%
BRF is the other Brazil small-cap ETF in the market, competing directly with EWZS. The fund offers similar exposure, but it doesn’t allocate as heavily to microcaps.
BRF is more liquid than EWZS. The fund trades nearly $1 million a day, on average, with an average spread of 0.30%. Compare that with $700,000 in average daily volume at an average spread of 0.47% for EWZS. The wider the spread, the more costly a fund is to trade.
Consumer discretionary is the fund’s biggest sector allocation, at 24%. Nearly three-quarters of the portfolio is tied to five sectors, but consumer staples is not in that mix. Consumer discretionary, financials, utilities, industrials and health care are the leaders.
BRF costs 0.60% in expense ratio and has $103 million in assets.
iShares MSCI Brazil Capped ETF (EWZ) is up 92.5%
EWZ is a total market portfolio of Brazilian securities, and the market’s largest, with $5.6 billion in assets. It’s the most popular Brazil ETF.
The fund is a vanilla, market-cap-weighted approach to total market Brazil exposure. It’s large, it’s liquid and, overall, competitively priced for the access it offers.
With an expense ratio of 0.63%, EWZ trades more than $550 million a day, on average, with an average spread of only 0.03%. The 53-holding portfolio has a weighted average market cap of $34 billion.
Financials are by far the biggest sector bet in EWZ, representing about 40% of the portfolio. Consumer staples and energy round out the top three sector allocations, and together, the three represent roughly three-quarters of the overall mix.
First Trust Brazil AlphaDex Fund (FBZ) is up 91%
FBZ is a smart-beta take on Brazilian equities. The quantitative approach—a trademark of its issuer, First Trust—doesn’t look for neutral exposure to Brazil; it seeks companies likely to outperform the market.
The multifactor security selection process and the tiered weighting scheme result in a portfolio that tilts smaller than other broad funds. The weighted average market cap in FBZ is $8.4 billion.
The methodology also leads to sector tilts that are different from a vanilla total-market approach—something investors should see as increased risk, which is unsurprising give that the fund seeks to outperform the market.
Financials, utilities and basic materials are the biggest sector bets, representing about 60% of the portfolio.
FBZ, which came to market in 2011, has $139 million in assets and costs 0.80% in expense ratio. It’s also worth noting here that average spreads are a wide 0.72%, so the costs of trading this fund can quickly add up.
Global X Brazil Consumer ETF (BRAQ) is up 80.2%
BRAQ is designed to offer investors direct exposure to the Brazilian consumer market. The fund owns companies that provide goods and services to consumers. It’s the only one of its kind.
The portfolio limits single-security weightings at 4.75% in an effort to minimize concentration and single-stock risk seen in this segment.
Consumer staples is the fund’s largest sector bet, at nearly 50% of the portfolio, followed by consumer discretionary, industrials, energy and health care names. The 28-holding portfolio has a weighted average market cap of $7.4 billion.
BRAQ, which came to market in 2010, has only $5.6 million in assets. The fund isn’t all that liquid either. It trades with an average spread of 1.38%, with a daily volume averaging $27,620. BRAQ costs 0.77% in expense ratio.
Global X Brazil Mid Cap ETF (BRAZ) is up 74.2%
BRAZ focuses on Brazil’s midcap segment. The fund’s weighted average market cap is $6.2 billion. BRAZ is also the only midcap Brazil fund in the market, but that hasn’t translated into overwhelming popularity.
Launched in 2010, this ETF still has only $4.6 million in assets. Its daily trading volume averages less than $50,000, trading with an average spread of 0.83%. BRAZ costs 0.69% in expense ratio.
From a sector perspective, BRAZ has a big allocation to utilities, at about 20%. Consumer discretionary and financials follow, with a combined 33% weighting.
Global X China Materials ETF (CHIM) is up 64.3%
CHIM invests in basic materials companies of all market capitalizations. Some of its subsector exposures include steel, metals and mining names, aluminum companies and chemicals.
According to our data, China’s basic materials industry is heavily concentrated on construction materials, but CHIM offers a more diversified portfolio. Construction materials represent only 11% of the overall mix, which also includes 15% allocation to steel, 13% to specialty mining and 11% to gold miners.
CHIM costs 0.65% in expense ratio for a portfolio that has 24 holdings. The fund, launched in 2010, has only $2.6 million in assets.
iShares MSCI All Peru Capped ETF (EPU) is up 62.1%
In our ranking of the top 10, this is the only fund that’s not focused on Russia, Brazil or China. EPU offers exposure to Peru’s total market.
Peru is not an easy market to access due to its heavy concentration—our data show that only two Peruvian companies represent 90% of the market’s total capitalization. For the purposes of a diversified total-market ETF, EPU offers exposure that differs from a purely vanilla take on the market to bypass this heavy concentration problem.
What that means is that EPU isn’t as heavily allocated to financials as one might expect. The fund does have a lot of weighting in basic materials, at about 45%, which makes sense for Peru, which is known for its natural resources. Financials represent about 30%.
The fund, launched in 2009, has $258 million in assets. It costs 0.63% in expense ratio.
SPDR S&P Russia ETF (RBL) is up 55.8%
RBL is a market-cap-weighted total-market portfolio of Russian equities. It’s one of three ETFs competing in this segment. The fund also includes Russian companies that are incorporated outside of Russia.
Perhaps unsurprisingly, energy is RBL’s biggest sector bet, at about 46% of the portfolio. Russia is a big oil-centered economy. Financials and basic materials follow, at 20% and 12%, respectively.
The fund is much smaller and less liquid than the competing VanEck Vectors Russia ETF (RSX), but it’s competitively priced at 0.59% in expense ratio and has $32 million in assets. RSX, with $2.8 billion in AUM, costs 0.67%.
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Contact Cinthia Murphy at [email protected]