# Where's the BRIC love now?



## james4beach (Nov 15, 2012)

A few years ago, analysts wouldn't shut up about how BRIC (Brazil, Russia, India, China) were the rapidly growing markets. They were really pushing those funds, so let's look back at performance. Here are 3 year charts, these are all non-dividend figures

Brazil index, -50% in 3 years
Russia index, -45%
India index, +20%
China index, -30%

For BRIC group that's an average 3 year performance of -26%. Ouch. Hey, at least one of them went up.

For comparison sake, in the same period (raw index, no divs)
SP500 +45%
TSX +4%
Gold -4%

I'm also going to point out, yet again, that fixed income turns out to be a pretty decent investment. With interest included, XSB is up 8% in the last 3 years. XIU is up 13%.

Now think about that... low risk short maturity bonds returned 8% vs high-risk, high volatility stocks (13%). Little old XSB performed dramatically better than BRICs.

Putting money into fixed income does not necessarily mean forfeiting performance. Think about this the next time salespeople tempt you to move money from fixed income into some high risk stock sector.


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## Janus (Oct 23, 2013)

BRICS was just about one of the stupidest investment concepts of the last decade. It made north americans think these countries have absolutely anything in common as investment markets.

No comment on your anti-equities rant...


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## Oldroe (Sep 18, 2009)

You are really pointing out why guys like you never make money.

China looks like it might have hit a bottom.


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## andrewf (Mar 1, 2010)

One problem that all four markets seem to have in common is corporate governance issues and high levels of government meddling.

I hope that investors take to heart the lesson that GDP growth and equity returns are uncorrelated. Just because an economy is growing quickly does not mean that stocks are a surefire bet, contrary to what bald wheeze-bag 'dragons' chant at you on the TV every day.


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## humble_pie (Jun 7, 2009)

james4 you are cherry-picking & twisting as usual

watch closely now. Will ukraine trigger a crash in western markets? 

it will be your biggest opportunity yet to gloat. Oh how happy you will be!

no, wait. Didn't you say you are 51% equity, not long after you said you are 90% fixed income?


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## dubmac (Jan 9, 2011)

I bought VWO last summer.
Even tho the price is down (2.50 below my purchase price), I'm still making money thanks to the currency exchange (VWO is priced in US D)
I'd buy more on a dip - but have no $ now.


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## james4beach (Nov 15, 2012)

andrewf said:


> I hope that investors take to heart the lesson that *GDP growth and equity returns are uncorrelated*. Just because an economy is growing quickly does not mean that stocks are a surefire bet, contrary to what bald wheeze-bag 'dragons' chant at you on the TV every day.


Yes, that's a really important point!

According to Shiller's research, until you get to around the 40 year time scale, stock market returns can be wildly divergent from GDP growth and fair market value.


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## Rysto (Nov 22, 2010)

dubmac said:


> I bought VWO last summer.
> Even tho the price is down (2.50 below my purchase price), I'm still making money thanks to the currency exchange (VWO is priced in US D)
> I'd buy more on a dip - but have no $ now.


The fact that it is priced in USD is irrelevant. If you made money on currency movements it would be due to CAD going down relative to BRIC/other EM currencies, not the USD.


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## rusty23 (Jan 25, 2012)

I want to see comparison of total returns. Can't exclude div from the equity funds but include the interest in the bond funds.


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## m3s (Apr 3, 2010)

dubmac said:


> I bought VWO last summer.
> Even tho the price is down (2.50 below my purchase price), I'm still making money thanks to the currency exchange (VWO is priced in US D)
> I'd buy more on a dip - but have no $ now.


Same. But with that train of thought the Euro-CAD exchange has even made my sports car an "appreciating" asset. It is nice to be diversified.


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## GoldStone (Mar 6, 2011)

james4beach said:


> Here are 3 year charts, these are all non-dividend figures


3 years! Is it the best you can do?

Let's play "I SPY". 

EEM is loaded with BRICs. Attached is EEM chart since inception. Do you spy XSB?

(hint: it's yellow)









The chart doesn't include the dividends. EEM yields more than XSB, do you really want to include them in comparison?


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## andrewf (Mar 1, 2010)

You really need to use TR charts for a fair comparison. Bloomberg does do TR charts.


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## GoldStone (Mar 6, 2011)

10 year TRs

EEM: 10.49% (in USD)
XSB: 3.95% (in CAD)


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## james4beach (Nov 15, 2012)

Emerging markets have exhibited excellent 10 year performance


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## humble_pie (Jun 7, 2009)

james4beach said:


> Emerging markets have exhibited excellent 10 year performance



james4 you are a member who has contradicted himself time & time & time again.

now here you go again in this thread. It's a very short, tiny thread consisting of 14 messages, but here you are 180 degrees opposite to your startup claim. Can you not please watch what you are posting in order to be more consistent.

here is your startup claim at the beginning of this thread, in which you cherry-picked the past 3 years only, in order to scoff at "analysts" who had embraced emerging markets.

however, i've recently seen one emerging markets analyst pointing out that some emerging markets are doing alright with respect to their own market histories & in their own currencies. The recent twist on the story - from our perspective in canada - has been the strength of the US dollar. It's the conversion into US dollars that has appeared to lower the performance of some 3rd world stocks & markets so noticeably.




james4beach said:


> A few years ago, analysts wouldn't shut up about how BRIC (Brazil, Russia, India, China) were the rapidly growing markets. They were really pushing those funds, so let's look back at performance. Here are 3 year charts, these are all non-dividend figures
> 
> Brazil index, -50% in 3 years
> Russia index, -45%
> ...


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## humble_pie (Jun 7, 2009)

dubmac said:


> I bought VWO last summer.
> Even tho the price is down (2.50 below my purchase price), I'm still making money thanks to the currency exchange (VWO is priced in US D)
> I'd buy more on a dip - but have no $ now.



i'm wondering if u would like to google your VWO for currency hedges? i'm no expert here, but it looks like various individual emerging market securities were hedged to USD in VWO, which in its turn was not hedged to CAD.

the first step - the native currency hedging - meant that emerging market securities did not lose as USD soared; in the 2nd step, unhedged USD itself rose strongly against CAD; these flukily lucky 2 histories coincided to produce your recent positive return.

somewhere canadian couch potato has a good although slightly dated article on this complex hedged/unhedged VWO combo. My point in mentioning is that if currency circumstances alter, the lucky fluke could reverse into the opposite direction.

ottomh i think if i were buying emerging markets today, i'd look for an ETF vehicle that was currency unhedged all the way.


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## GoldStone (Mar 6, 2011)

VWO doesn't hedge.


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## humble_pie (Jun 7, 2009)

GoldStone said:


> VWO doesn't hedge.


yes that's exactly what i said.

VWO doesn't hedge to CAD.

but the underlying holdings in the emerging markets themselves are hedged in their native currencies to VWO which is, after all, a US fund.

ie there's a 2-tiered currency effect which happens to have greatly benefited recent holders of VWO because of USD appreciation.

but i'm wondering whether a reverse move, as in USD declines, could trigger an opposite effect, all without the actual emerging markets stocks or indexes particularly moving in their own native currencies.


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## dubmac (Jan 9, 2011)

HP...

I don't entirely understand what is written in this article, but it refers to VWO and currency hedging. Not sure if it will add light to your question. http://www.etftrends.com/2014/01/no...dging-makes-a-difference-in-emerging-markets/
When I bought VWO last summer, I bought it with the aim of adding more diversification to our pf. 
I bought 100 shares at the end of July - VWO was 39.60 (USD). Today it is 38.01, and my holdings are up a very small amount (about 2.5%). The plan is to buy more over the next few years - when I have $ and I do not now!
I was, and still am, mindful not to try to time the market, so, I held my nose and hit the "buy" button. So far, so good.


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## gibor365 (Apr 1, 2011)

I have similar approach, but I'm buying not VWO, but DEM


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## mrPPincer (Nov 21, 2011)

From the article..
'..its unhedged rivals, the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) and the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO).'

VWO = unhedged


GoldStone said:


> VWO doesn't hedge.





humble_pie said:


> yes that's exactly what i said.
> 
> VWO doesn't hedge to CAD.


VWO is a US based ETF that does not hedge..
To the best of my knowledge, it does not hedge to the USD, it does not hedge to the CAD, 

so, therefore currency fluctuations are irrelevant, the currencies are all fluctuating in the market based on their own valuations per country in which the equities are held.

In other words, VWO could be held in USD, bitcoins, CAD, gold dubloons, banannas or barrels of rum, it doesn't matter what it's traded in, it will fluctuate only as the underlying market does.

to reiterate..


GoldStone said:


> VWO doesn't hedge.


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## RBull (Jan 20, 2013)

^any specific reason?


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## dubmac (Jan 9, 2011)

Reguly suggests things in Eastern Europe will get worse. Since the start of March, he reports, the Russian stock mkt is down -18%! Imagine that happening here! Reguly also suggests that Poland is one to watch -"If Polish assets fall, it would take the EM crisis to a whole new level"

http://www.theglobeandmail.com/repo...tors-should-assume-the-worst/article17504489/


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## mrPPincer (Nov 21, 2011)

RBull said:


> ^any specific reason?


Vanguard buys the equities directly. 

When you buy the ETF, you own the individual stocks through them, (Vanguard, or likewise with any other ETF); 
the fact that the ETF is held in USD does not have any effect on the valuation of the ETF in relation to Canadian dollars.


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## james4beach (Nov 15, 2012)

humble_pie, sometimes I think you have difficulty reading.

I wrote and showed that 3 year performance of BRICs is horrible.
In that period, even cash would outperform BRICs
I pointed out that salespeople pumped BRICs when they were high, but are quiet now that it's fallen.
Then I acknowledged that 10 year performance is quite strong.

These aren't contradictory things, what's your problem with this series?


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## humble_pie (Jun 7, 2009)

james4 your latest version is *not* how the series has been posted.

in your introductory post, you scoffed & jeered at "analysts" in pejorative language, using a cherry-picked 3-year time frame to attempt a spurious point. 

then you bragged, as you so often do, about how well your wonderful bond fund had performed over the same 3-year period.

in fact the whole point of that introductory post was to boast about your fixed income products while scoffing & jeering at others ... as we have seen so many times before.

then another poster referred to your "rant" against equities.
then others objected to the cherry-picking.
then others suggested you go back 10 years.
then others asked about distributions.

finally, after all of this, when it was 100% clear that your initial argument was a loser, you about-faced & admitted that 10-year performances in emerging markets are "excellent."

one has to wonder why you launched this thread in the first place.


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## humble_pie (Jun 7, 2009)

i'm not at all sure that VWO holds actual shares of stock. From what i can gather from the financial statements, what it holds are at least some futures & index contracts on the native or emerging stock markets.

many low-cost etfs do this. They are simulated equity funds, holding derivative products as a simulated portfolio instead of actual stocks, often because the logistics of holding real stocks in some 3rd world countries are prohibitively expensive. For example, reliable custodial services - of crucial importance in countries whose stock exchanges can be primitive if not chaotic - often tend to be prohibitively expensive even by our western standards.

currency hedges do not appear per se in the audited list of all portfolio holdings for VWO - possibly the reason why others have not noticed the same - but nevertheless they are in place.

hedging is a nebulous concept regarding many activities that can be carried out via a spectrum of different modalities, including the use of derivative products such as futures & forward contracts. Here is Vanguard's explanation.

from the Notes to Annual Financial Statements of 31 october 2013 for Emerging Markets Stock Index Fund (VWO), Part (A) 3:

_The fund may also enter into forward currency contracts to provide the appropriate currency exposure related to any open futures contracts. The fund’s risks in using these contracts include movement in the values of the foreign currencies relative to the U.S. dollar and the ability of the counterparties to fulfill their obligations under the contracts ...

Futures contracts are valued at their quoted daily settlement prices. Forward currency contracts are valued at their quoted daily prices obtained from an independent third party, adjusted for currency risk based on the expiration date of each contract. The aggregate notional amounts of the contracts are not recorded in the Statement of Net Assets. 

Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures or forward currency contracts._


although there appears to be a lag in booking currency adjustments according to the above paragraphs, nevertheless i believe that the emerging markets holdings in vanguard's VWO do closely track the US dollar via this mechanism. This, i submit, is what prevented black mac's recent investment in emerging markets from falling, as USD rose.

next, as the 2nd step in the 2-step process i've already written about, the very soaring of unhedged USD vis-a-vis CAD meant that black mac's VWO holding rose in value in canadian dollars even though the underlying interests may have sidelined or fallen.

i also thought that this currency-based effect could unravel quickly. I did not pose any question for myself since i don't hold this fund & would not buy this fund at this point in time. Rather, i thought it might be a valid consideration for anyone who does already hold this fund.


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## Fain (Oct 11, 2009)

Definately didn't perform up to expectations. But right now there's alot of deals to be had. CHL(China Mobile) is especially cheap right now.


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## hboy43 (May 10, 2009)

humble_pie said:


> one has to wonder why you launched this thread in the first place.


Nice summary Humble. God help us if James is right one day and the world falls to pieces. I'll have to roll up my worthless stock certificates and use them to poke my eyes out, for the bleating/gloating will be so strong I won't be able to take it.

More seriously, James has strong convictions and he feels the need to present them often as is his right. Similarly one could call out others who feel that emergency funds are the most important idea around here. Or the gold folks.

Or even me and what I do. 

Many here have ideas they think are the "truth" and to a greater or lessor extent "sell" them.

I think the issue is the relentless nature of some. I present my case about once a year and then bugger off. I have presented my "truth" if anyone is interested in exploring it. I don't need to beat it into people. I don't care if anyone believes what I write. In fact it is better they don't for other people's poor investment characteristics is to my advantage.

So James, I invite you to believe what you believe and write about it, just less often perhaps. If you got it down to even once a month, I might even read it closely and give it serious consideration.

hboy43


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## Pluto (Sep 12, 2013)

james4beach said:


> A few years ago, analysts wouldn't shut up about how BRIC (Brazil, Russia, India, China) were the rapidly growing markets. They were really pushing those funds, so let's look back at performance. Here are 3 year charts, these are all non-dividend figures
> 
> Brazil index, -50% in 3 years
> Russia index, -45%
> ...


1. You pay too much attention to the analysts, (and sales staff). After you learn how to make your own decisions, you won't be focused on themes such as this one, because you will be too busy making money in equities. 
2. They - the analysts and sales people - can't sell this stuff easily after stocks have gone down because the new and naive like to see a history of rising prices before they buy (at the wrong time). I think you have transitioned from new and naive to confused. After you get through your confused stage, you might be a good stock investor. 
3. Based on some of your previous posts, I think the main thing that is confusing you is you think a good economy is good for stocks. It isn't. By the time an economy gets good, stocks have already reflected that and beyond. I don't get why you are not interested in, say, considering buying Brazilian equities? in lieu of making observations about analysts poor timing? For instance, pbr. Why is it so low? is the low price warranted? You are better served asking such questions, and seeking answers, than promoting cash and xsb. XSB is only good for a temporary parking place while looking for some good stock.


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## RBull (Jan 20, 2013)

mrPPincer said:


> Vanguard buys the equities directly.
> 
> When you buy the ETF, you own the individual stocks through them, (Vanguard, or likewise with any other ETF);
> the fact that the ETF is held in USD does not have any effect on the valuation of the ETF in relation to Canadian dollars.


Sorry my question was directed at Gibor re DEM. Your post got there before mine. 

I own lots of Vanguard including VWO so am familiar with the product.


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## mrPPincer (Nov 21, 2011)

ah ok, I see, you were asking the reason gibor buys DEM & not VWO

edit: (Looking at Google Finance charts they seem to track pretty close, but VWO share price has done slightly better over the last 6 months).


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## humble_pie (Jun 7, 2009)

hboy it is such a pity that you only post about once a year. Please don't "bug" off, it's persons like yourself who have such a unique wealth of sound practical knowledge to share.

this becomes all the more valuable as more & more new investors crowd into discountland & into cmf forum. There aren't too many places they can find good suggestions; this forum is one of the places, although it's certainly chaotic & there are plenty of single instrument monotone players like james4.

hboy please forgive me if i'm distorting your views, but from my corner at the bottom of the scullery i've always thought that your investment approach is to buy quality stock when it's cheap & then let well enough alone?

this is a golden rule imho. Good for a lifetime. Its patience & logical grounding are not unlike those of the dedicated index couch potato. Both proceed in a disciplined manner.

please visit more often hboy. Once a month would be so much better than once a year!


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## Pluto (Sep 12, 2013)

humble_pie said:


> hboy it is such a pity that you only post about once a year. Please don't "bug" off, it's persons like yourself who have such a unique wealth of sound practical knowledge to share.
> 
> this becomes all the more valuable as more & more new investors crowd into discountland & into cmf forum. There aren't too many places they can find good suggestions; this forum is one of the places, although it's certainly chaotic & there are plenty of single instrument monotone players like james4.
> 
> ...


I second that hboy. Don't bug off for a year or more. Give your perspective more often, please.


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## hboy43 (May 10, 2009)

humble_pie said:


> hboy it is such a pity that you only post about once a year. Please don't "bug" off, it's persons like yourself who have such a unique wealth of sound practical knowledge to share.
> 
> hboy please forgive me if i'm distorting your views, but from my corner at the bottom of the scullery i've always thought that your investment approach is to buy quality stock when it's cheap & then let well enough alone?
> 
> lease visit more often hboy. Once a month would be so much better than once a year!


Oh thank you Humble and Pluto. I am around more often these days, after a hiatus. I was more referring to my annual or so wordy, gassy pontification that runs many paragraphs on some aspect of what has gone well or poorly in my experience. Presumably if anyone is interested they can search them out, though it seems that perhaps some of the older stuff has been deleted from the board - every once in a while I try and find some old stuff that I think I have done and don't find it.

My most recent point, which did not need a long winded post was the fact that I had gone some 14 or 16 months without doing a trade. Sometimes the best thing to do is to do nothing. I mentioned this is passing a time or 3 here.

I actually have an idea for a doozie: Hunt down every trade I have ever done in 32 or so years in the market. About 90% I have the original trade paperwork, but some of the early stuff I discarded, so would have to find TDW and even Gardiner Group (discount brokerage that TDW purchased) account statements - which may also be missing. Would be a bit of an archaeological dig. Laziness will likely rule this out as it would be a weeks worth of 8 hour days to find and present everything. 

I don't directly invest internationally, but if Brazil is down 50% in 3 years as stated by James, that is the kind of development that would get me vibrating, and likely doing a little reading.

Cheers

hboy43


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## gibor365 (Apr 1, 2011)

RBull said:


> ^any specific reason?


Just liked more DEM holdings that VWO


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## AltaRed (Jun 8, 2009)

Personally, I do not like slice and dice mutual funds or ETFs. They tend to be faddish and incur higher MERs and turnover/churn than their broader based brethren. IF one wants to be in emerging markts, I would stick with something like VWO or its CAD equivalent (if it exists yet). I remember when the Far East was a fad in the '80s, and then again in the '90s, only to slash and burn both times. Some of us older folk will remember being in high MER mutual funds like Fidelity Far East. I rode it up in the '90s only to see it go off the ski jump with the Asian flu crisis anf finally throwing in the towel. A lesson I remember to this day.


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