iShares MSCI BIC ETF (BKF)

The iShares MSCI BIC ETF (BKF) is an exchange-traded fund that holds stocks from just three countries: Brazil, India, and China. Instead of spreading across dozens of emerging markets like a broader emerging-markets fund, BKF bets on these three large, fast-growing economies. It is sponsored by BlackRock and trades like a stock on the exchange, holding dividend-paying and capital-appreciation potential from some of the world’s biggest emerging economies.

What you are buying

BKF holds stocks from three countries and three countries only: Brazil, India, and China. These are the B, I, and C in the acronym BIC. Together, they are home to billions of people and among the world’s fastest-growing large economies. But the fund is not a bet on all emerging markets—it is a bet on just these three. That is important because Brazil, India, and China have different industry makeups and face different risks. Brazil is rich in natural resources and agriculture. India is strong in information technology and financial services. China includes everything from manufacturing to consumer goods to technology. The fund’s sectors and weightings shift as the relative size and composition of these three economies change.

How it works and why someone would buy it

BKF is a passively managed fund that simply owns stocks in the three BIC countries in proportion to their market size. You buy and sell shares on the stock exchange during trading hours, just like any stock, and the price moves with the value of the fund’s holdings. The expense ratio is low because it is tracking a simple, published index rather than relying on active managers to pick stocks.

Investors buy BKF for a few reasons. Some believe these three economies will outgrow the rest of the world and want concentrated exposure. Others use it to build a custom geographic allocation—maybe they want 30 percent of their emerging-markets allocation in BIC countries and the remaining 70 percent spread across other emerging economies. BKF also works as a substitute if you want to avoid some emerging markets entirely while keeping exposure to the big three.

The BIC story

Brazil, India, and China together are home to over 2.7 billion people and account for a growing share of global output. They have large, deep capital markets that are increasingly open to foreign investment. But they are also different enough that owning all three is like owning a basket of different bets. Brazil’s dependence on commodities means its currency and stock market move with global commodity prices. India’s growth is demographic and technology-driven and tends to be steadier. China’s economy is state-guided and faces unique geopolitical tensions with the United States. Lumping them together in one fund means you get all three stories at once.

What can go wrong

The biggest risk in BKF is concentration in three countries whose economies and regulatory environments are very different from those of the United States. A political crisis, a currency crash, new capital controls, or a geopolitical conflict involving any of these countries can hit the fund hard. China’s government policies toward foreign investment change frequently and can hit certain sectors without warning. India’s growth can slow if inflation or interest rates spike. Brazil’s commodity dependence means its stocks move sharply with global oil, metals, and agricultural prices. Because the fund holds only three countries, it does not have the diversification of a full emerging-markets fund.

Currency risk is real too. All three countries have currencies that fluctuate against the dollar, and a strong dollar hurts the dollar value of your holdings, while a weak dollar helps.

How to use BKF in a portfolio

BKF works best for investors who have done research on these three economies and believe in their long-term growth. It can be a complement to a broader emerging-markets fund if you want to overweight the biggest emerging economies. It is not a substitute for total market diversification, and it carries higher volatility than broad emerging-markets indices because of its concentration. Start by reading the fund’s fact sheet to see the current weight of each country and the top holdings. Check the performance history and see how much the fund swings up and down in good and bad years. Read the prospectus for any limits on how much it can invest in each country. Then decide whether you believe in these three economies and can tolerate the swings that come with them.