Build Your Own BRIC Fund

Among emerging markets, the so-called 'BRIC' economies -- Brazil, Russia, India and China -- continue to find favour with investors. Certainly, the growth rates of all four continue to outstrip the UK's pallid performance several times over.

Just today, for instance, came the news that the Chinese economy grew by 10.3% in the second quarter of the year -- a sparkling performance that's admittedly down from 11.9% in the first quarter as government stimulus packages came to an end. But even so, UK GDP growth this year is expected to be around 1%.

Yet relatively few investors are brave enough to invest in the BRIC economies directly -- especially when it comes to shares not listed on the London Stock Exchange.

Funds

So for many, specialist BRIC investment funds are the way forward, and most fund platforms carry at least one such fund.

The trouble is, they're not exactly cheap. On the Hargreaves Lansdown (LSE: HL) platform, for instance, which carries four BRIC funds, the Allianz RCM BRIC Stars fund carries an annual charge of 1.75%, with a rebate of 0.325% where applicable. The quoted TER is 1.93%.

Other funds vary slightly, but most are in this general ball park.

Which begs the question: is there a cheaper way to gain BRIC exposure? And yes, there is -- via London-listed ETFs tracking the four BRIC markets.

So here are four potential BRIC single-country ETFs, each -- in the interests of diversification -- selected from a different ETF provider.

As you'll see, the applicable TERs are less than half of those charged by funds.

Four Possible Picks

For Brazil, for instance, the recently-launched HSBC MSCI BRAZIL (LSE: HMBR) tracks the MSCI Brazil Index, which is made up of the largest listed companies in Brazil, and has a TER of 0.60%.

For Russia, you could pick Royal Bank of Scotland's own recently-launched DAXglobal Russia Index Fund (LSE: RUSD), which tracks the performance of the largest and most liquid Russian companies trading through ADRs and GDRs on exchanges such as London and Frankfurt. The TER is 0.7%.

India? Well, that could be Lyxor India S&P CNX NIFTY (LSE: LNFT), which tracks 50 of the largest and most liquid Indian blue chips listed on the National Stock Exchange of India -- an Indian 'Nifty Fifty', in other words. The TER is 0.85% (and apparently it is the TER, even though the website refers to it as a 'management fee'.)

And China? Investors who are still nervous about mainland China might like to look at iShares FTSE/Xinhua China 25 (LSE: FXC), which tracks 25 of the largest and most liquid Chinese stocks (both 'Red Chips' and Hong Kong shares) listed on the Stock Exchange of Hong Kong. The TER? 0.74%.

Note, these ETFs are simple trackers, and that BRIC fund managers will be stock-picking. But such is the pressure on them to avoid under-performing the relevant market indices, that an element of 'closet tracking' is to be expected.

A single ETF?

Of course, it's also possible to buy an individual BRIC ETF that handily straddles all four economies -- the iShares FTSE BRIC 50 (LSE: BRIC), for instance, or the DAXglobal BRIC Index Fund (LSE: BRDX), which carry TERs of 0.74% and 0.70% respectively.

But whether that works out more cheaply depends upon the weightings chosen by the investor building his or her own BRIC portfolio from the individual ETFs selected. The HSBC offering at 0.60% is significantly cheaper than (say) Lyxor's 0.85%, and the ETF mix chosen will affect the average TER of the four. Equal weightings of all four give an average TER of 0.72%.

Quite apart from cost, though, the great advantage of the do-it-yourself approach is that it allows the investor to make their own decisions as to country allocations and weightings.

The latest information that I could find on the constituents of the FTSE BRIC 50, for example, suggested that it was 45% Brazil, 17% Russia, 5% India and 33% China. I don't know about you, but I'd like to see rather more India and China, and rather less Brazil and Russia. 5% India, in particular, strikes me as too low.

And the do-it-yourself approach permits just that flexibility -- as well as offering the potential for shaving a few basis points off the TER.