Building a portfolio one BRIC at a time

No-one would ever consider building an entire investment portfolio around BRIC — Brazil, Russia, India and China — but why risk watering down your returns with fluctuations in other markets when you can focus on the ones that are growing? That’s how Excel Funds Management’s CEO Bhim Asdhir sees it, and so far the strategy has worked quite well.

“We don’t want to diversify for the sake of diversification,” he says of Excel’s strategy. “Sometimes when you diversify too much what happens is you are not focus. We want to be a specialist; we want to delivery the best out of India and China.”

Excel is an anomaly in the Canadian fund scene. It holds only three funds, and two of them are country focused. The idea of country specific funds isn’t new. Not long ago there were funds available in Canada that targeted Brazil, Argentina, Japan, to name just a few. Currency crises and economic disasters all but ended that trend. Overseas, China and Japan are the only country focused funds that people think of these days.

But can a case be made for starting up these types of funds again, particularly in the case of India?

Consider this: India and China both have populations of more than a billion, markets are rapidly evolving and both are seen as economic engines, growing at a clip of between 7.5% and 9.5% a year. The other half of the BRIC is not performing nearly as well (see chart on page two). That’s not to say BRIC funds are under-performing. While still quite new, Franklin Templeton’s BRIC Corporate Class fund, the only fund in Canada that specifically targets these four emerging markets (including Hong Kong and Taiwan), has a year-to-date return of 20.3%.

Still, by some accounts, India is considered a better bet because it has a government structure that Canadians are more familiar with, as well as a rapidly growing middle class and a massive population under the age of 25 who will soon become consumers and producers.

Wal-Mart, Tesco and Carrefour all see India’s potential, and they are just some of the multinational companies that are actively trying to win the hearts and minds of the Indian people and their government to let them in.

“Ideally, it does not make sense to have a country specific fund when you have a small country, but India is a continent,” says Asdhir, “It is a special situation, the same thing with China as well.”

Investors have no problem investing in Canada, which is much smaller. “India and China over the next 10 years are going to be the best opportunity for any investor, provided you do it right. I don’t think there is any other opportunity that is more outstanding. Why? Because the pie is growing,” Asdhir says.

In 50 years, India and China combined are expected to eclipse the U.S. economy in terms of gross domestic product. According to Asdhir, the second half of the BRIC is projected to swell to $72 trillion US while the U.S. economy will be somewhere around $35 trillion US.

He particularly likes India because it has correlation with North America of just 0.4. What that means, he says, is that India is not as susceptible to the whims of the American consumer unlike some of the other BRIC countries, because most of India’s trade is still internal.