How Long Will "BRIC" Stay Out Of Favor?

It had been working as well as any diversified emerging market concept. If India struggled, China and Brazil picked up the slack. If Latin America faced challenges, Russian oil powered the "R" in the Claymore/BNY BRIC Fund (EEB).

Yet the last 3 months have been woefully uncooperative. The Claymore/BNY BRIC Fund (EEB) has witnessed bearish declines in excess of 20% from the top. It currently resides roughly 19% below its all-time peak.

Although technical analysts might be encouraged to see EEB remain above its long-term trend (i.e., 200-day moving average), most rallies have been short-lived. And for some, the 65%+ gains of 2007 are beginning to feel like a distant memory. 

However, for those investors who still wish to commit money to emerging market assets, a price point near 45 may be quite attractive. Why? For one thing, an investor who missed the surge has a lower-risk entry point that he/she had just 3 months earlier. Second, one can enter the four big "emergers" without having to overweight a single country (e.g., Brazil, Russia, India, China) or purchase 4 separate ETFs.

Although the next graph may be difficult to interpret, let me make a few points in text. First, one idea of diversification is to garner reward with less risk. An investment in the Claymore/BNY BRIC Fund (EEB) over the last 12-month period has yielded similar results to an investment in either the China 25 Index (FXI) or the India Index (INP) with less "single country" risk.

Second, even if there's fractional outperformance by Brazil (EWZ), there's significant underperformance by Russia (RSX). This is not to suggest than any of the emerging economies are poor choices... they were excellent choices in 2007. Yet, the risk-adjusted rewards suggest that diversifying across "BRIC" is far more compelling.

I am by no means calling for a wholescale jump back into emerging markets. However, for those who intend to allocate a small portion of their portfolios, Claymore/BNY BRIC Fund (EEB) sets forth a reasonable foundation for "BRIC" investing.   

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