BRICS: The Expanding Power ETF Investors Need to Know About

BRICS: The Expanding Power ETF Investors Need to Know About

The growing global trading group may challenge the U.S.’s economic dominance. 

Reviewed by: Mark Nacinovich
Edited by: Ron Day

The late August expansion of the so-called BRICS nations may go down as the time the countries made the transition from a connected bloc of emerging economies to a leading global economic powerhouse that rivals that of the United States. 

It might represent a big long-term opportunity for ETF investors and financial advisors who do the research to identify potential rewards and risks of the bloc that includes Brazil, Russia, India, China and South Africa. Together, those countries make up 40% of the world’s population and account for 25% of global gross domestic product.  

BRICS has invited Saudi Arabia, Egypt and the United Arab Emirates to join their bloc of emerging markets. Smaller, less impactful economies Iran, Argentina and Ethiopia were also approved to join. Assuming all invitees join, at the start of 2024, BRICS will have expanded from five to 12 countries. More importantly, they will collectively represent more than 40% of global oil supply and over 70% of the land where so-called rare earth materials are mined. 

The big new prize for the BRICS in this expansion is Saudi Arabia, and its vast oil resources. This has the potential to strengthen its ties with China and India. 

 No wonder that dozens of nations are trying to join BRICS.  

Expanding BRICS 

As an example of how the BRICS expansion prompts a moment of re-discovery for investors, consider that there was a “Chindia ETF” that allocated only to stocks in China and India. It launched in 2007, survived the Global Financial Crisis, soared during the pandemic and its price grew nearly 400% from that low point. The exchange-traded fund, whose symbol was FNI, was closed and liquidated in January of this year. Another ETF that focused on Brazil, China, India and South Korea closed down just last month. 

Here are some ETFs that make a helpful starting point for investors who want to start thinking of BRICS more like an asset class, and less like a collection of countries far away from North America. 

The iShares MSCI BIC ETF (BKF) owns stocks in Brazil, India and China. This $69 million fund sells at a P/E of only 12.5 times trailing earnings, which hints at the relative value that currently exists outside of the mega-cap U.S. stocks. 

There are also many ways to gain exposure to the current or expected new version of BRICS by focusing on thematic ETFs. For instance, the Columbia Emerging Markets Consumer ETF (ECON) narrows its stock selection to the consumer and communications sectors, and chooses stocks of companies that derive at least 75% of revenue from emerging markets. This 13-year-old, $66 million ETF includes allocations to several current and prospective BRICs countries.  

Investors can also create their own BRICS-oriented basket of equities using a group of ETFs. China, India, Brazil and Saudi Arabia all have accessible single-country index ETFs from iShares as follows: 

The iShares MSCI China ETF (MCHI) has over $7 billion in assets and is selling at less than half its January, 2021 price level. 

The iShares MSCI India ETF (INDA) is approaching $6 billion and holds 121 stocks 

The iShares MSCI Brazil ETF (EWZ) debuted in 2000 and has $5.2 billion in assets 

The iShares MSCI Saudi Arabia ETF (KSA) launched in 2015 and has an asset base of just over $950 million. 

It is way too early for ETF investors to get a good handle on how successful an expanded BRICS will be, and how it will compete with the U.S. economy, the global leadership of the U.S. dollar and the competitive position of places like Europe and Japan. But with economic battle lines being drawn to this extent, financial advisors have a great opportunity to get ahead of what will likely become “cocktail party talk” by next year. 

Rob Isbitts was an investment advisor for 27 years before selling his practice to focus on ETF research and education. He is based in Weston, Florida. Contact him at  [email protected] and follow him on LinkedIn.