International ETFs

The “BRIC” Countries (Brazil, Russia, India, and China) are the 4 developing nations likely to continue to have strong domestic growth over the next decade and beyond. These countries have rapidly growing middleclass’ that will prevent their economies from topping out anytime soon. The easiest method to get exposure to the economies of these countries is through ETFs. Risk adverse investors have crushed these ETFs over the past 6 months and after a huge pull back from 52 week highs these international ETFs could have huge upside potential. The question is which one? I would immediately knock off any ETF tied to the Russian indices. The Russian economy is tied to energy prices and there is currently a lot of political instability in the area. I would also take India off my list. Much of India’s growth was a result of companies from the US and Europe outsourcing to India. As the US and Europe go through a downturn, the growth of those jobs will slow and put pressure on the fledging middle class that relies on them in India. Which leaves Brazil and China. The two ETFs I would look at are EWZ (iShares MSCI Brazil Index ETF) and FXI (iShares FTSE/Xinhua 25 China ETF). See comparison charts below:

The performance of these ETFs is almost identical. However, the sector weighting of each ETF is very different. (see charts below).

52% of EZW is in Energy and Materials and 40% of FXI is in financial services. Knowing this makes the decision easier. If you believe energy and material prices will rebound, EZW is the best pick, but if you think Chinese banks will be stimulated by government assistance FXI is a buy. To hard to make a decision? There are also ETFs that have exposure to each of the BRIC countries.