BRIC funds trounced by GEM rivals
The flexibility of more general emerging market funds has allowed them to protect themselves better than their BRIC counterparts during turbulent periods.
By Joshua Ausden, News Editor, FE Trustnet
Wednesday May 16, 2012
Funds that focus solely on Brazil, Russia, India and China (BRIC) have significantly underperformed both their benchmark and global emerging market rivals in recent years, according to FE Trustnet
The three BRIC funds in the IMA unit trust and OEIC universe – Allianz RCM BRIC Stars, HSBC BRIC Markets Equity and Dr Mark Mobius’
Templeton BRIC – have all fallen short of their MSCI BRIC benchmark over five years by some distance.
HSBC BRIC Markets Equity fund has the best record over the period, but with returns of 16.01 per cent, it has still fallen 7.15 per cent short of the index.
Performance of funds vs index over 5-yrs
Source: FE Analytics
Mobius’ $2.2bn Templeton BRIC fund – the largest and highest profile of the three – has lost money over five years, underperforming the MSCI BRIC index by more than 25 per cent. All three have fallen short by at least 6.5 per cent over a three-year period as well, and have also lost more than the index in the last 12 months.
The same is true of FSA-recognised offshore BRIC funds, including the Schroder BRIC and €1.7bn DWS BRIC Plus portfolios, which have returned 12.99 and 7.66 per cent respectively over five years. Both have also fallen significantly short since May 2009.
There was a flurry of BRIC fund launches in 2005 and 2007, following strong performance across all four countries. According to FE data, the MSCI BRIC index returned 227.62 per cent in the five years to January 2007.
However, BRIC funds have largely failed to deliver since coming onto the scene – particularly compared with their rivals in the Global Emerging Market sector.
According to FE data, the average fund in the sector has returned 25.1 per cent over five years, beating the average IMA BRIC fund by 22.41 per cent. The margin of outperformance is almost identical over three years.
Performance of sector vs average fund
Source: FE Analytics
The strongest performer in the sector, the five-crown rated First State Global Emerging Market Leaders
fund, has outperformed the average BRIC fund by more than 73 per cent over five years, and the top-performing BRIC fund by 59.84 per cent.
Richard Troue, fund analyst at Hargreaves Lansdown, says a lot of the underperformance comes down to market timing.
"A lot of these funds were launched right at the top of the market, which hasn’t helped them at all," he explained. "They were hit very hard during the financial crisis and again in 2011, and the problems facing the likes of India, Russia and China have been well documented."
"This is, of course, the problem with a thematic fund, because if all the countries are struggling, they’re going to be left behind by more flexible emerging market funds."
However, Troue thinks these products still have a place in certain portfolios.
"I wouldn’t say the theme is flawed," he explained. "Yes, if you’re new to emerging markets and want a core holding, something like Aberdeen Emerging Markets would be more suitable, but once you’ve built up your exposure and want to start specialising, these funds are an option."
"The countries share similar demographics with growing populations, but they are growing for different reasons – Russia is still very energy driven, and Brazil still relies heavily on exports. I suppose if you have a high-conviction play on one of the countries – particularly in the short-term – a single country fund might be a better bet," he added.
Hargreaves Lansdown previously included Allianz RCM BRIC Equity on its Wealth 150 list, but dropped it in 2011.
"We like the team and think it could do well in the long-term, but we removed it simply because it was falling short of its benchmark," Troue finished.