Back in February 2013, 12 years after coining the term BRIC (Brazil, Russia, India and China) as an acronym for the world’s strongest source of emerging market growth, Goldman’s Jim O’Neill retired, but not before some very (traditionally) optimistic words of parting, namely that there is “clear evidence things are doing better economically.”
This is what Goldman said in his retirement announcement:
Jim is an influential economist and thought leader, and is regarded as an expert in the world’s foreign exchange and bond markets. Importantly, he has identified revolutionary economic trends, defining the concept of the BRICs which has become synonymous with the emergence of Brazil, Russia, India and China as growth opportunities of the future. Jim’s BRIC thesis has challenged conventional thinking about emerging markets and, as a result, has had a significant economic and social impact.
Nearly three years later, things are not only not doing better economically, with the entire world now engaged in outright, or quasi QE (with helicopter money to follow as Adair Turner infamous warned) just to support global asset prices, but the very emerging markets that made up the BRICs, have devolved to a state of economic freefall. And nowhere is this more obvious than in Goldman’s decision to pull the plug on the infamous fund that bears the name of Goldman’s most bullish acronym in history.
According to Bloomberg, Goldman’s bank’s asset-management unit folded its money-losing BRIC fund, which invests in Brazil, Russia, India and China, and merged it last month with a broader emerging-market fund. Goldman Sachs pulled the plug on the nine-year-old product because it doesn’t expect “significant asset growth in the foreseeable future,” according to a filing to the U.S. Securities and Exchange Commission.
The BRIC fund lost 21% in the five years through Oct. 23, the last trading day before the merger. Its assets declined to $98 million at the end of September after peaking at $842 million in 2010, according to data compiled by Bloomberg.
As Bloomberg reports, “the downfall of the BRIC fund, which had lost 88 percent of its assets since a 2010 peak, also underscores how the strategy of bundling disparate countries into a single investment theme is losing its appeal among investors.”
Perhaps it has sentimental value, but instead of liquidating the BRIC fund outright, Goldman will instead let it be merged into its larger EM Equity Fund:
The BRIC fund is being swallowed up by the Emerging Markets Equity Fund as part of Goldman Sachs’s efforts to “optimize” its assets and “eliminate overlapping products,” the New York-based bank said in the Sept. 17 filing.
Instead of liquidating the fund, Goldman Sachs opted for the merger because it will give investors access to “a more diversified universe” of developing nations. The bank pointed out that the emerging-market fund has outperformed in the one-, three- and five-year periods.
As it turns out, the BRICs was nothing more than investing in flow momentum, because while it worked for many years…
In the decade following the creation of the BRIC moniker, the group surged as a global economic power, amassing 40 percent of the world’s foreign reserves. MSCI Inc.’s BRIC Index returned 308 percent in the 10 years through 2010, compared with a 15 percent gain in the Standard & Poor’s 500 index.
While the four countries still account for more than one fifth of the global economy, their growth prospects have dimmed. In a December 2011 report, Dominic Wilson, then chief markets economist at Goldman Sachs, said the economic potential for BRICs probably peaked because of a smaller supply of new workers.
The predicament has become even more striking this year. Brazil is reeling from a corruption scandal and the worst recession ina quarter century, while Russian companies are locked out of global capital markets because of international sanctions. In China, the government was caught off guard by a stock crash this year that wiped out $5 trillion in market value. Even in India, where growth accelerated, Prime Minister Narendra Modi is struggling to push through reforms.
… All it took was the end of the Petrodollar and China’s hard(ish) landing to kill all the wind in the sails of the BRICs – something nobody noticed (as we duly noted) a year ago, and which ultimately manifested itself in the EM debt crisis of the late summer,precipitated by the soaring dollar and leading to China’s devaluation and record capital outflows.
And now that it’s all over, the Mondey morning quarterbacking begins: “The BRIC acronym didn’t make any sense in the first place because you just randomly group four countries which are completely different,” said Xavier Hovasse, who oversees $2.3 billion emerging market assets at Carmignac Gestion. “If you restrict your investment universe too much, it’s more difficult to perform. I am not surprised that those funds are collapsing.”
And to think it was only 2 years ago when not a cloud was in sight.
Andrew Williams, a spokesman for Goldman Sachs, declined to comment on the fund’s closure. O’Neill, who stepped down as the chairman of Goldman Sachs Asset Management in 2013 and became commercial secretary to the U.K. Treasury in May, also declined to comment, Bloomberg notes.