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Battle for BRIC assets heats up: winners & losers revealed

Citywire Investment Research looks at the latest launches and where the money's really going.

Demand builds for BRICs

Industry talk and fund flows suggest BRIC equities are coming back into vogue and even China is slowly regaining investors’ confidence.

However, the group is a very mixed one. The Chinese economy slowed last year to its weakest level for quarter of a century and finished 2016 with growth of 6.7%. India was the best performing of these regions in terms of GDP with 7% growth but Russia shrunk by 0.6% and Brazil contracted 3.4%.

Varied they may be but the BRIC nations are hard to ignore. Together they encompass more than 25% of the world’s land mass and their combined GDP exceeds that of the US. Here we look at which of these constituent parts has led the pack over the past four years in terms of fund launches, active fund flows and manager performance in the equity space.

This article originally appeared in the May edition of Citywire Selector magazine.

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Managers making their mark

The average manager in the sector has comfortably outperformed the market over all the years covered in this analysis.

The same however, cannot be said about the other regions. Managers active in Brazil, Russia and China have underperformed their benchmarks on average or are closely tracking them over the past couple of years.

Researching individual managers carefully is therefore key in order to tap the many opportunities across the region, but those focused on Indian equities have a clear edge at the moment.

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What did we discover?

The Chinese equity sector saw the most fund launches in 2015, but this number fell the following year after the crisis that unfolded in its market during the first quarter.

Fund launches in Brazilian equities far outweigh those of India and Russia. The latter has the lowest count over the last couple of years, as there have been no new active fund launches in the region.

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Launches vs. flows

Relatively few fund launches were aimed at India but flows into these strategies have been more impressive than the other BRIC regions. Despite the low number of new funds, established portfolios in the Indian equity sector are still taking in the lion’s share of flows. This could be due to the exceptional performance of active managers in the space over the past four years.

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Three key takeaways

  • BRIC investments can add value to a portfolio but researching the right manager is crucial. Investors should also note that bouts of short-term volatility are the norm.
  • Fund launches are not an indicator of how well a sector is performing. Despite investor demand, performance may not follow. Be wary of sectors with the most launches.
  • The best-performing BRIC managers are those active in the Indian equities sector. Even a manager chosen at random in this space is likely to be a market outperformer.

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