Investing in a BRIC (Brazil, Russia, India, China) strategy may have paid off in 2007, but don't assume similar growth for 2008, warns John F. Wasik in a Bloomberg commentary today:

At first blush, the BRIC idea seems like a firm foundation for a growth portfolio. In the three months through Sept. 30, Brazil's gross domestic product expanded 5.7 percent; Russia at 7.6 percent; India at 8.9 percent; and China was up 11.5 percent.

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The BRIC strategy was inspired by a paper published by Goldman Sachs Group Inc. in 2003. Titled ``Dreaming with BRICs: The Path to 2050,'' the report predicted that in less than 40 years, the combined economies of these high-growth countries would be larger than that of the top six nations today in U.S. dollar terms.

Wasik admits that the BRIC plan is appealing, but that it does increase your portfolio volatility. Neither can one assume that the four-way split is in itself a hedge:

A bubble bursting in China would hit world markets at the speed of light. China's CSI 300 Index, a basket of stocks on the Shanghai and Shenzhen exchanges, rose about 160 percent last year. Many analysts say it's ripe for a decline. Rapid growth often invites rampant stock-market speculation. Remember the Asian ``contagion'' crisis of 1997?

Could a BRIC ETF capture the pros without the cons? The Claymore/BNY BRIC ETF (EEB) posted a 67 percent rise in 2007, though Wasik adds a proviso: The fund is more BC than BRIC, as 80 percent is invested in just Brazil and China. Rather than increasing portfolio concentration, one should be seeking diversification. Wasik suggests:

A better vehicle for diversification is a fund that invests in Europe, Australia and the Far East, also known as EAFE. The iShares MSCI EAFE exchange-traded fund (EFA), for example, is a reasonable way of tapping global returns without loading up on any one country. While gaining less than 10 percent last year, it has outpaced the S&P 500 Index by 77 percentage points over the past half-decade.

As Wasik points out, the mix of mature economies in such an ETF provides much appreciated insulation for when some/all/any of the emerging economies turn sour. BRIC may have shown stellar performance recently, but the old adage still applies: Don't put all your eggs in the same BRIC basket.

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By SA Editors