Advisors are hoping the very public criticism of BRIC markets won’t set back their fight against home country bias
It appears the notion of the BRIC economies being a good bet is all but dead, but one advisor is warning not to fall back in to the same trap.
“The whole idea of BRIC funds and ETFs was always gimmicky,” said Dan Hallett, vice-president and principal with HighView Financial Group. “If you’re going to get a little bit narrower through a BRIC theme, I’m not sure it makes all that much sense, especially when you look at emerging markets. As the economies grow and mature that’s a process that takes decades so it’s not a slam dunk to be able to invest in the country or companies that have exposure to the country and have it be a successful investment.”
Since Goldman Sachs coined the term BRICs in 2001 – bumping MINT economies off the hotlist – many analysts have believed Brazil, Russia, India and China were poised for strong economic growth. However, Goldman Sachs actually closed its shrinking BRIC equity fund in September and shifted the remaining assets into a broader fund covering all emerging markets.
Instead of trying to pick the next set of BRIC countries advisors are better off approaching emerging markets with a broader tact.
“I know it’s hindsight, the more narrow you make your investment the more you have to rely on that high-level country call,” said Hallett. “If individuals or their advisors start picking countries, they are making a very explicit active investment decision – and I think if that decision is going to be made the vast majority of advisors and individual investors are ill-equipped to make such decisions soundly.”
Despite the concern around BRIC countries and the record outflows of capital leaving emerging markets there are still long-term opportunities for advisors.
“It’s dangerous if you’re looking to make a quick gain but that’s created a pretty large valuation disparity between developed markets and emerging markets and frontier markets,” said Hallett. “The gap seems to be wider than it’s been historically. It would appear there is some good value there for patient investors.”
HighView uses a global manager, and a year and a half ago they started seeing more value in emerging markets and were making it a larger portion of portfolios.
“It’s because company by company they were finding interesting businesses – leaders at least in their region and cheap valuations,” said Hallett. “It’s a component of a portfolio but that’s where it belongs because when the time comes when they’re not finding as much opportunity they will have the flexibility to move elsewhere. Even there they’re not making country calls but they’re saying we’re finding a lot of very attractive opportunities in this region or that region and themes kind of emerge from their company by company analysis.”
“The whole idea of BRIC funds and ETFs was always gimmicky,” said Dan Hallett, vice-president and principal with HighView Financial Group. “If you’re going to get a little bit narrower through a BRIC theme, I’m not sure it makes all that much sense, especially when you look at emerging markets. As the economies grow and mature that’s a process that takes decades so it’s not a slam dunk to be able to invest in the country or companies that have exposure to the country and have it be a successful investment.”
Since Goldman Sachs coined the term BRICs in 2001 – bumping MINT economies off the hotlist – many analysts have believed Brazil, Russia, India and China were poised for strong economic growth. However, Goldman Sachs actually closed its shrinking BRIC equity fund in September and shifted the remaining assets into a broader fund covering all emerging markets.
Instead of trying to pick the next set of BRIC countries advisors are better off approaching emerging markets with a broader tact.
“I know it’s hindsight, the more narrow you make your investment the more you have to rely on that high-level country call,” said Hallett. “If individuals or their advisors start picking countries, they are making a very explicit active investment decision – and I think if that decision is going to be made the vast majority of advisors and individual investors are ill-equipped to make such decisions soundly.”
Despite the concern around BRIC countries and the record outflows of capital leaving emerging markets there are still long-term opportunities for advisors.
“It’s dangerous if you’re looking to make a quick gain but that’s created a pretty large valuation disparity between developed markets and emerging markets and frontier markets,” said Hallett. “The gap seems to be wider than it’s been historically. It would appear there is some good value there for patient investors.”
HighView uses a global manager, and a year and a half ago they started seeing more value in emerging markets and were making it a larger portion of portfolios.
“It’s because company by company they were finding interesting businesses – leaders at least in their region and cheap valuations,” said Hallett. “It’s a component of a portfolio but that’s where it belongs because when the time comes when they’re not finding as much opportunity they will have the flexibility to move elsewhere. Even there they’re not making country calls but they’re saying we’re finding a lot of very attractive opportunities in this region or that region and themes kind of emerge from their company by company analysis.”
