Comments on: Do BRICs belong in your portfolio?

By: User links about "scandals" on iLinkShare

User links about "scandals" on iLinkShare — Thu, 15 Jan 2009 10:48:34 +0000

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By: Weekly Roundup: Laboring All Day Edition at Clever Dude Personal Finance & Money

Mon, 01 Sep 2008 19:46:50 +0000

[...] Capitalist questions whether BRICs belong in your portfolio. If you’re wondering, BRIC stands for the emergins markets of Brazil, Russia, India and [...]

By: Ron Robins

Ron Robins — Wed, 27 Aug 2008 15:02:18 +0000

I see a number of comments referring to ethical investments.

For anyone interested I have a Canadian site that covers the latest global news and research on ethical investing. It’s at http://investingforthesoul.com/

Best wishes, Ron Robins

By: Big Winner

Big Winner — Tue, 26 Aug 2008 02:19:59 +0000

In 2004, US stocks were 40% of the total equities in the world, and now they are only 29%. It seems as if this trend will continue, with the non-USA world getting an even larger slice of the pie.

By: Blogging About Money

Blogging About Money — Tue, 26 Aug 2008 02:03:43 +0000

Other considerations when investing in BRIC countries include evaluating the rule of law in each of these countries. In India and China, land ownership rules are so lax or non-existent, that corporations can experience great expenses setting up shop only to be forced to relocate a few months later. Russia has shown that they are unafraid to nationalize public companies’ assets.

Another consideration is the immature nature of each BRIC countries’ public stock exchanges. While providing ample opportunities to find grossly undervalued companies, one can also encounter gross price manipulation, fluctuations or any of a number of adverse results that can destroy value in one’s portfolio.

Wouldn’t it be simply better to find great Western companies that have been able to penetrate these emerging giants for their future growth, like Coca-Cola, Pepsi, Johnson & Johnson, General Electric, et. al.? Seems to me that these companies will profit as much, if not more than most local publicly traded companies.

By: Phil S

Phil S — Mon, 25 Aug 2008 22:19:35 +0000

It’s kind of a no-brainer that BRIC must do well, as just China and India alone have half of the entire world’s population and they are working hard to bring themselves out of poverty.

My problem with China is that it is a communist country and they can make decisions which affect foreign capital on a whim. India’s market is a very protected market as well, as foreign investors cannot invest directly in the country. If you look at some of the funds that invest in India, they have to set up some bizarre money laundering scheme involving setting up offshore corporations owned by Indian nationals to hold all of those investments and stuff. If India’s government closes all of these loopholes, they can just confiscate all of your money because it was an illegal entity to begin with. And don’t get me started with all of the corruption and the oligarchy in Russia.

Brazil, on the other hand, is making amazing economic reforms and strides ahead since their currency crisis of near a decade ago.

So, my advice is to invest overseas with great care. Even if you’re investing in a developed country like Germany – do you have any idea if their companies follow international GAAP? And if not, how can you equate their P/E ratios to ours, as their Earnings are likely not calculated the same way… Our own accounting of assets is very dubious in nature – what do you suppose their balance sheet looks like?

By: ThickenMyWallet

ThickenMyWallet — Mon, 25 Aug 2008 18:16:36 +0000

What’s often over-looked in emerging markets is there are no real rules to protect the shareholder. Disclosure is, relatively speaking, a laughable concept, regulators don’t want to kill the golden goose so they let A LOT go and standardized accounting rules are merely optional and Enron type accounting scandals can be daily practices. The allocation you suggest is prudent given these risk factors.

By: Charles

Charles — Mon, 25 Aug 2008 17:45:13 +0000

NN, of course you have a good point too – but remember that an ETF or mutual fund following an SRI index does not need to do their own research. They’re paying for it via license fees, but it doesn’t have to cost that much. For example, the US mutual fund VFTSX follows the FTSE4Good US Select index and has an MER of 0.24%. I would gladly spring for that if I were allowed to. And iShares in Germany has the “iShares DJ EURO STOXX Sustainability 40″ ETF with an MER of 0.42%.

I do realize that SRI decisions made by a fundco or index provider may not be totally ideal compared to my own standards, but it still excludes the worst from the pack. For example I own no share in Halliburton because my US equity is invested in KLD which excludes that company. In any case I feel like Western-world unethical companies are “the devil I know”, and developing-world unethical companies are an entirely different breed that scares me.

By: Dividend Growth Investor

Dividend Growth Investor — Mon, 25 Aug 2008 16:24:03 +0000

I am always hesitant about “catchy” investment phrases like Nifty-fifty, bricks and clicks, and BRIC.
It makes me want to do some short selling.

By: NN

NN — Mon, 25 Aug 2008 15:27:03 +0000

Buying into specialized BRIC funds is chasing past performance, and hopefully no regular reader of this blog considers doing that. The case for emerging markets in general is different – there are some good opportunities outside the BRIC nations (Africa, for instance. It may not be too long before the marketing departments at Vanguard et al start churning out EZRA funds [Egypt-Zimbabwe-Rwanda-Algeria]).

Charles, you raise a good point. However, unethical companies operate out of all markets (Halliburton, for example). What reason is there to believe that a screen for SRI is adequate? An ETF administrator needs to minimixe costs – hardly an incentive to do extensive SRI research. I believe the only way to be sure you are investing in ethical companies is to do your own research, but you won’t construct a ’sleepy portfolio’ that way….