Bric concept comes tumbling down

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The ever so quiet closure of the Goldman Sachs Bric fund – announced in a US regulatory filing on 17 September – will be seized on by journalists as the end of an era, at least in investment terms.

It is not quite up there with the fall of the Berlin Wall. Indeed, merging the fund with a more generalist emerging markets portfolio, as Goldman has done, probably made sense a long time ago.

That is not to slate Jim O’Neill – or at least not too much. As a concept designed to demonstrate a huge shift in global economic power and indeed a new era of global connectivity, the Bric acronym he coined served a purpose. As an idea for a fund, well, let’s say not so much. That is why investors have been leaving such funds in droves.

Brazil, Russia, India and China are of huge global importance, whether those markets are up or down or somewhere in between. But even with the occasional inclusion of South Africa as the ‘S’ at the end of the acronym, the question remains: why on earth would you exclude other important emerging markets?

The only case for even combining the original four appears to have been size. But there is an argument that China, India and Russia, at the very least, are all special cases that do not bear much resemblance to one another.

The question remains: why on earth would you exclude other important emerging markets? John Lappin

China is clearly the most intriguing of the lot, but also, arguably, the most misunderstood. The global imbalances resulting from China’s rise may well have provided the economic context of the global financial crisis – an environment in which banks and, to a lesser extent governments, could behave so badly.

China’s stimulus then helped cushion the world against the downturn, but it is arguably only now, as the country moves to a more consumer-driven stage of development, we are finally noticing just how important the country is. Maybe the ‘B’, ‘R’ and ‘I’ had previously distracted us from this.

In fact, I also worry that perhaps we were all caught out in some sort of pervasive belief in inevitable progress. We certainly translated this belief all too casually into expectations for share prices. But societies can at times go backwards politically and economically – and that surely has an impact on stocks.

That means that UK investment advisers can give themselves at least two cheers out of three. They have fought the fads to a great extent, supported by diversification and cashflow modelling. They have not fallen for the siren call of supposedly significant global ‘megatrends’, which have often proved too big and too global to call accurately.

However, one cheer must be withheld due to ongoing concerns over a range of assets. These include energy and commodities, and indeed other old economy stocks and bonds, from supermarkets to carmakers.

It is not clear that anyone – whether fund manager, wealth manager or investment adviser – has got a real handle on the implications of further price drops in these areas. As a result, it may make sense to test current assumptions, even when it comes to portfolio planning.

But there is only one piece of information needed when it comes to investment acronyms, and that is: don’t use them – whether Bric or any silly group of letters for that matter.

John Lappin writes on industry issues at