Thick as a BRIC

New fund from Goldman Sachs gives investors more non-correlative equity choices

Goldman Sachs Asset Management (GSAM) has launched an all-cap BRIC equity fund, which will concentrate assets in 20 to 40 companies based in, or doing business in, Brazil, Russia, India and China. The Goldman Sachs BRIC Fund (GBRAX) will now be available to U.S investors--it has been available to investors offshore in Luxembourg since earlier this year.

"The term 'BRIC' was coined by Jim O'Neill [Goldman Sachs' London-based head of global economic research] at Goldman Sachs in November 2001," says Maria Gordon, speaking on a July 25 conference call. Gordon, based in London, is a portfolio manager for the new BRIC fund, and executive director and co-head of GSAM's global emerging markets equity. The other portfolio managers for the BRIC fund are: Singapore-based Kenny Tjan, executive director and co-head of GSAM's global emerging markets equity; Richard Flax executive director, global emerging markets equity, London; and Mark Syn, executive director, global emerging markets equity, Singapore.

Younger populations and new pools of consumers are helping drive interest in BRIC investing. According to GSAM, the pool of new consumers in BRIC countries with annual incomes of above $15,000 will, by 2025, be almost twice the total population of Japan, three times the total population of Germany, and four times the total population of the U.K., France, or Italy. The four countries form natural markets for each other: "China and India are key sources of demand for natural resources; Russia and Brazil are key sources of supply for natural resources," explains Gordon, adding that BRIC countries contributed one-third of global growth in past five yrs, according to Jim O'Neill.

With valuations more modest since the emerging markets' sell off this year, Gordon asserts that Ex-India, (which at 19.9 times earnings still has relatively high P/E multiples), BRIC markets have more attractive fundamentals than the U.S., Europe, or Japan markets. She calls BRIC a "very profitable slice of the universe." Including India, the P/E ratio for BRICs is 11.8 times earnings, while the U.S. is 16.8 and Japan is 19, according to GSAM.

The BRIC fund is designed to be part of a core and satellite approach to asset management with the BRIC fund one of the satellites complementing a "core" of more diverse equity and fixed-income assets. Because it will invest in a relatively low number of companies, the BRIC fund is considered more concentrated than many emerging markets funds, and may be more volatile as well. Emerging markets funds have an average volatility of around 20% while the BRIC fund may have closer to 25% volatility, according to Gordon. But BRIC countries are also considered to have a low correlation to each other, and to U.S., and international equity markets, according to GSAM research. The Goldman Sachs BRIC Fund will invest across all capitalizations including "under researched" small- and mid-cap stocks that Goldman says have "higher alpha potential"--part of the reason for choosing an actively managed fund rather than simply investing in an index fund. The fund carries a 5.5% load and has a $1,000 investment minimum.

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