Coined by former Goldman Sachs chief economist and ex-UK government minister Jim O’Neill in 2001, the BRIC bloc of Brazil, Russia, India and China was supposed to represent the fastest-growing emerging economies outside of the G7 group of western developed economies.
Yet the investment case for the feted BRIC economies has been overshadowed in recent years by the poor performance of the Brazil and Russia equities markets. While Chinese and Indian markets have continued to deliver strong returns, sanctions-hit Russia and politically turbulent Brazil have lagged their counterparts.
Over the past three years, the MSCI India index has generated a return of 52.70 per cent, while the Chinese index is up by 32.28 per cent. Brazil, meanwhile has managed just 0.20 per cent growth over the same time and the Russian index is down by -1.54 per cent. The free float-adjusted, market capitalisation weighted index MSCI BRIC index has delivered a 21.85 per cent return.
In its outlook for the G20 group of advanced economies, the OECD has forecast real GDP growth of 7.6 per cent for India and 6.4 per cent for China in 2017. After difficult years for the Russian economy following the imposition of sanctions, real GDP is expected to expand by 0.8 per cent during 2017. Brazil, too, is expected to emerge from the economic doldrums with flat growth after difficult years for the South American economy.
Individual market performance over three years
Source: FE Analytics
Of the dedicated BRIC funds in the Investment Association universe, the HSBC GIF BRIC Markets Equity fund overseen by Nick Timberlake has been the best performer over the past 12 months, delivering a return of 43.44 per cent, compared with a 24.49 per cent rise for the average IA Global Emerging Markets fund.
However, the HSBC fund had a poor 2015 making a loss of 17.77 per cent compared with a fall of 13.46 per cent for its composite benchmark. It has an annualised return of just 0.82 per cent over three years.
The $765m (£614.6m) Templeton BRIC fund, co-managed by emerging markets veteran Mark Mobius and Dennis Lim, has returned an impressive 33.08 per cent over the past year. Yet, the fund also struggled in 2015 after reporting a 10.25 per cent loss, compared with a 8.23 per cent contraction in the MSCI BRIC index.
“Sentiment toward emerging markets continues to become more positive as many investors look for higher yields and the risk perception toward the asset class improves,” wrote Mobius recently.
“A rebound in emerging-market currencies, easing concerns about a hard landing in China, attractive valuations and robust economic fundamentals in many economies are some of the factors that have continued to support the performance of emerging markets.”
“GDP growth in many countries has also been slowly improving, and over the next few years, countries like Russia and Brazil could see the biggest relative improvements.”
BRIC funds over one year
Source: FE Analytics
As two of the fastest-growing - and largest - economies of the BRIC bloc, China and India have offered many opportunities.
Three funds in the IA universe have at least 25 per cent exposure to India and China and have outperformed the MSCI BRIC index over the past three years.
Fidelity’s £878m Emerging Asia fund managed by Teera Chanpongsang – which has a 31.1 per cent weighting to China and 34.7 per cent of its portfolio in Indian stocks – has returned 50.84 per cent over three years.
“Relative to stocks in developed countries both on valuation and risk basis, companies in Asia are at the bottom of the earnings cycle and expected to deliver better earnings growth in the coming year,” Chanponsang noted earlier this month.
Mirae’s £347.6m Asia Sector Leader Equity fund and the £219.1m Old Mutual Asian Equity Income fund are both up by more than 30 per cent over the same period.
Funds with Chindia bias over three years
Source: FE Analytics
Despite some of the challenges for the Russian and Brazilian economies and markets more recently, some active fund managers have shown their value by generating solid returns in difficult market conditions.
Russian equities funds in particular have fared well with the £179m Pictet Russian Equities fund up by 16.95 per cent over three years, while the £43.8m Baring Russia fund has risen by 11.52 per cent over the same period.
Brazilian equities funds have struggled, however. Just one Brazil-focused fund has generated a positive return over three years: the $111.5m (£89.5m) BNY Mellon Brazil Equity fund, up by 4.09 per cent.