A BRIC ETF to diversify globally

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Source: trading view

What I like about BKF is that it offers a viable option to own shares, albeit indirectly, in some of the world’s largest companies, instead of having to carefully sort out a long list of stocks and select those with solid fundamentals. This work has already been done by the fund managers, iShares.

Thus, BKF offers exposure to companies in Brazil, Russia, India and China, four major emerging countries. To this end, it tracks the MSCI BRIC index which is made up of Chinese equities accessible to international investors as well as Brazilian, Russian and Indian equities. He held 667 shares as of December 23. More importantly, its valuations, as shown by its price-to-earnings ratio, are 17.49, down from the 22.31 for the SPY.

Aloud, the negative correlation between BKF and SPY seems to align with the idea that the BRICs are seen by some international experts as an emerging power that acts as a kind of counterweight to the West, namely the United States and Western Europe.

Now there are geopolitical factors like the standoff between the United States and China or the sanctions imposed on Russia that affect the global balance of power, but the BRIC countries, both as regards the their combined population size and the landmass they occupy, are expected to play a larger role in the global economy.

The same should be true of their listed companies. These include big names like Jack Ma’s Tencent (OTCPK: TCEHY), Infosys (OTCPK: INFY), an Indian software giant, Gazprom (OTCPK: GZPMF), the Russian energy superpower, and Vale SA (VALE), materials from Brazil.

Source: iShares.com

That said, with overwhelming exposure to China, expect a lot of turbulence over the abrupt way regulations are being enforced on publicly traded companies by that country’s authorities. Additionally, with greater exposure to the secondary sector like manufacturing, BRIC members are more likely to be affected by the price of raw materials.

There is also the factor of uncertainty as economies around the world ride each wave of Covid. Therefore, BKF is expected to experience a higher degree of volatility than the US and European stock markets.

Nonetheless, Chinese companies should be part of any alternative strategy to build a strong global portfolio that should perform well even if the growth of US large caps decides to pause. It is also important to choose a region of the world where there is stability and growth.

To this end, the People’s Bank of China (equivalent to the US Fed) recently lowered its benchmark policy rate from 3.85% to 3.8% for the first time in nearly two years, in support of an economy presenting tensions related to Covid as well as suffering from a real estate crisis. This should help the Chinese economy as a whole.

Therefore, I expect BKY to flirt with the $ 50 level in 2022, which is more than 10-11% above its current share price as a certain degree of market fatigue takes hold. US markets with gradually biting inflationary pressures next year.

Finally, unless you are a trader or have a significant percentage of BRICs in your overall portfolio, the daily volume of stocks traded is on average only around 11K-12K, compared to around 8M-9M for the SPY. This is simply because BKF has much less assets than the powerful S&P 500 ETF.

In contrast, I would be more careful of BKF’s 0.70% fee rate, which makes it one of the more expensive funds in its class, but this is largely covered by its 2.86% dividend yield. , with distributions to shareholders made twice a year.


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