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Researching Brics

This article is part of
Guide to Gaining Exposure to Bric Growth

There are no Bric peer groups on the standard databases such as Lipper Hindsight, making researching them a largely manual task.

Ayesha Akbar, portfolio manager in Fidelity’s Investment Solutions Group, says Bric funds are generally included in broader emerging market peer groups, but the performance can be quite different.

She says it is a case of individually going through funds – although most will have the acronym Bric in the fund name.

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In addition to the usual questions asked of fund managers, Ms Akbar says she would ask a manager which benchmark they are using.

“Sometimes, the Ucits concentration rules may prevent managers from holding big positions in benchmark stocks, and this will have an impact on relative performance.

“Also I would ask how much of the portfolio can be invested in non-Bric countries as this can also have a big impact on returns. If you are only investing in four main countries, I would also want to know how much local research resource there is available.”

The key question to ask Bric fund managers, according to Maarten-Jan Bakkum, senior emerging market strategist of ING IM, is what their views on the four markets are, and particularly what the China view is.

“Does he/she choose to play the China growth theme and have large exposure to commodity stocks in Russia and Brazil, or does he play the domestic demand growth theme in the four individual markets?”

At the end of August 2013 Asoka Woehrmann, co-chief investment officer of Deutsche Asset & Wealth Management, said: “The growth rate of Chinese gross domestic product will not fall below 7 per cent to 7.5 per cent. Market fears of a hard landing now appear misplaced.

“The Beijing government’s liberalization and deregulation measures will have a negative impact on economic growth in the short term. But they will be largely offset by current or future supportive initiatives, such as infrastructure projects and tax relief for smaller companies.”

When talking to Bric fund managers, it is vital to ask the right questions. Allan Conway, head of emerging market equities for Schroders, recommends tackling the following:

1) Does the manager have a disciplined investment process that can consistently deliver alpha through the market cycle?

2) Question managers on the robustness and repeatability of their investment process.

3) Does the manager dedicate sufficient resources to managing their Bric strategy?

4) Can the manager clearly articulate how they expect to add alpha?

5) What do they look for in companies and what is their investment time horizon?

6) How many companies do they regularly research and how often do they visit the companies they invest in?

7) If country allocation is part of the expected alpha, how are decisions taken? Are they based purely on judgement or is a more systematic approach taken?

8) Does the manager consider risk as well as return when constructing the portfolio and how is risk managed?