Bouquet for Liontamer's brick bat
By ROB STOCK - Sunday Star Times | Sunday, 25 February 2007

Home-grown fund manager Liontamer will next week begin marketing what it claims to be the first managed fund in the country to invest just in the so-called BRIC nations.

But whereas the world recognizes the term BRIC, standing for Brazil, Russia, India and China, the four emerging economies expected to become world-beaters, Liontamer has added a K to the end - Korea, which it believes has great, though somewhat smaller, potential than the big four.

Janine Starks of Liontamer, which is run from Wellington, said: "We've added South Korea, the `K' in our BRICK theme to the fund due to Goldman's more recent research. This identifies the N-11 (next 11) emerging markets. Of those, only Korea and Mexico stand out as having BRIC-like potential. We prefer the Asian influence due to Korea's prospects for becoming one of the wealthiest nations in the world."

Goldman Sachs, which coined the term BRICs in 2003, predicts Brazil, Russia, India, and China will stand alongside the US and Japan as the world's largest economies. It projects that China will be the world's biggest, with a per capita income of around US$31,360 and GDP of US$44.45 billion by 2050, trailed by the US (GDP of US$35.16b), and India (GDP of US$27.8b), followed by Japan, Brazil and Russia.

Even if it is 50% out, investors able to get the right exposure to the growing economies will do well, it maintains.  Liontamer describes the BRIC countries as being the focus of a seismic shift in the world economy similar to the rise of the US in the late 19th and early 20th century, or the post-war rebuilding of Japan.

So far, it's been hard for investors to get exposure in the BRIC markets where sharemarkets are difficult to access, volatile and lack many of the corporate governance standards expected in developed world sharemarkets.

The fund portfolio will give investors exposure as if they had invested 19% of their money in Brazil, 26% in Russia, 6% in India, 29% in China and 20% in South Korea. In Brazil, Russia, India and China, it does this through the top 40-listed companies in each. The BRICK Series 1 will have a capital guarantee and there will be two ways to invest in the fund -which is locked after launch for five years.

"Base" units will have full capital protection and give investors 90% exposure to the BRICK markets. That means for every $1 the underlying shares go up in value, investors will get a pre-tax return of 90 cents.  For more aggressive growth investors, "booster" units have 90% capital protection, but 120% exposure, meaning for every dollar the underlying shares go up, the investor will get $1.20 of returns before tax.

That's possible because the fund does not invest directly in shares, but gets investors access to the BRICK markets by using leveraged derivatives. Investors who want to get into the fund have to buy it through financial planners or sharebrokers.