Economic turnaround in Russia and Brazil may be tempting investors back to BRIC equity funds, with EPFR Global on Friday reporting such funds took in new cash for two weeks in a row for the first time in five months.
The Boston-based fund tracker said funds dedicated to the BRIC cohort – Brazil, Russia, India and China – had received $45 million so far in 2017 from investors, taking in $16.7 million in the past week and $29 million the week before.
The gains come against the backdrop of emerging equities hitting multi-month highs and funds tracked by EPFR enjoying the longest inflow streak since mid-2016 – thanks to robust commodity prices, rising company earnings and expectations of a benign U.S. Federal Reserve.
But BRIC funds, based on countries grouped together by former Goldman Sachs economist Jim O’Neill, have remained largely out of favor compared to their heyday a decade ago, and the category has come to be seen as an arbitrary one.
Slumping commodity prices tipped Russia and Brazil into recession after 2014 and fears have grown about China’s debt levels and ability to curb capital flight. While India is in favor now, a large current account deficit in 2013 almost sparked a severe financial crisis.
Now, as both Brazil and Russia return to growth amid commodity price stabilization and fiscal and monetary reforms, interest in BRIC funds may grow. But investors are still more likely to invest via funds dedicated to individual BRIC members.
So far in 2017, Brazil-, China- and Russia-dedicated equity funds tracked by EPFR have received around $1 billion each, with Brazil posting its biggest weekly inflow this week since end-2014.
India funds bring up the rear, having taken $380 million this year, albeit after absorbing $2.3 billion in 2016, EPFR data shows.
Signs are that BRIC as an investment concept will not recover to previous levels.
The number of active BRIC funds had fallen to 79 at the end of 2016, down from 98 a year before and 106 toward end-2014, according to Lipper, a Thomson Reuters company. Among the BRIC funds to shut was the one run by Goldman Sachs Asset Management, where O’Neill worked, closing in 2015.
BRIC funds’ net assets have shrunk to 4.6 billion euros ($4.87 billion) from 7.2 billion euros two years before and a fifth of end-2010 levels, Lipper data shows.
Last year, BRIC funds tracked by EPFR suffered over $1 billion in outflows last year after shedding $1.5 billion in 2015.
Bank of America Merrill Lynch in a recent note described the BRIC grouping as “strange”, with few similarities among its member countries other than size.
“Two are big commodity producers and two are big commodity consumers, hence their currencies and economies are often out of sync. Their political systems and growth models are different,” BAML said in the note, suggesting “BRIC” be shortened to “IC”.
“The bottom line: we think it is time to break up the BRICS”
Source: Reuters (Reporting by Sujata Rao; editing by Andrew Roche)