BRIC funds rally, but it’s a long way back

Investors tempted by Friday’s emerging markets rally might want to remember what it feels like to get hit with a BRIC.

The BRIC countries — Brazil, Russia, India and China — were singled out by Goldman Sachs in 2001 as the investment theme of the new century. Voracious demand for raw materials from India and China would be supplied by resource-rich Brazil and Russia.

The fund industry, never one to miss a story, rolled out three exchange-traded BRIC funds and one open-ended BRIC fund. (Direxion had two triple-leveraged BRIC funds, which have since been sent to the dustbin of history).

Their results the past five years have been miserable. iShares MSCI BRIC (BKF), the largest surviving BRIC fund, has lost an average 6.72% a year the past five years, vs. a 2.9% average annual loss for diversified emerging markets funds. The Templeton BRIC Fund (TABRX), the sole actively managed entry in the BRIC yard, has lost an average 8.8% a year the past five years.

What happened? The BRIC funds, like most emerging markets, soared in the market rebound of 2009. iShares MSCI rocketed to an 88.97% gain, while Templeton’s offering soared 90.88%. By 2011, however, the BRICs began to crumble.

India’s stock market started the ball rolling downhill in 2011, when the Bombay Sensex index fell 24.6%, its second-worst annual performance triggered by an economic slowdown and worries about the health of the nation’s banks. The Russian stock market plunged nearly in half in 2014, thanks to Western sanctions and plunging oil prices. Brazil’s stocks got crushed in 2015 along with commodity prices, as China’s economy — and its stock market — swooned.

South Africa’s stock market, which is sometimes included as part of the BRICS, also collapsed during the commodity rout.

So far this year, the MSCI BRIC Index is down 1.23%. For the optimists, this masks a sharp 12.2% rally in March, sparked by a lower dollar and a rise in oil prices. The rally continued Friday. For the pessimists, Brazil’s retail sales fell 10.3% in January, while China’s industrial production in the first two months of 2016 fell to its slowest pace since the 2009 financial crisis.

And for investors who aren’t discouraged by an initial failure, the fund industry now has two “beyond BRIC” exchange-traded funds. These focus on emerging markets stocks that aren’t in the BRIC index, although they do include South Africa. So far this year, SPDR Beyond BRIC (EMBB) is up 8.1%, while EGShares Beyond BRICs (BBRC) is up 5.2%.