Investopedia 15-01-2015 Aaron Levitt

Thinkstock While the BRICs had great promise, the time may have come to part with Russia and Brazil. The good times continue to roll for China and India, though.

Let’s face facts. The last few years haven’t exactly been amazing for the BRIC s. The nations of Brazil, Russia, China and India were supposed to be the next big leaders of the global economy, promising vast fortunes to those who invested in them.

Well, that just hasn’t panned out. Returns for the group and funds like the iShares MSCI BRIC ETF (BKF ) have been pretty poor over the last five years.

The effects of the Great Recession and global credit crisis are still being felt in at least two of these nations — namely Russia and Brazil. However, for the other two, the future continues to look bright. For investors, the time to focus solely on the I and C in BRIC could be at hand.

India & China Still Growing

When now-retired economist Jim O’Neil first dubbed the four nations of Brazil, Russia, India and China as the “BRIC” countries back in 2001, he did so with the idea that the group had the perfect blend of attributes to make them into the world’s next economic superstars. Large, populous nations driven by commodity wealth and rapid industrialization. For the most part, the grouping worked on that front. In 2007, Russia’s GDP expanded by 8.5%, while Brazil grew by over 6%. Both China and India saw double digit expansions. (For more, see: Understanding the Risk in the BRICs .)

And then the bottom fell out.

The global credit crisis hit the BRICs hard. And while China and India have bounced back, Brazil and Russia haven’t been so lucky. The duo has stricken with a series of factors that has the former Goldman Sachs Group, Inc. (GS ) economist wondering if they need to be included in the acronym and investors’ portfolios at all.

Both have suffered from falling commodity prices. Key produced natural resources, such as oil, nickel and iron ore, have all plunged since the credit crisis. That’s sent the two nation’s economies and national budgets into a freefall. Add in currency issues, potential debt defaults, a huge corruption scandal at Brazilian state-owned energy firm Petrobras (PBR ) and worldwide economic sanctions effecting Russia, and it’s easy to see how the B and R in BRIC are failing to live up to their promise. Russia’s economy contracted 1.8% in the fourth quarter, while Brazil’s sank 1%. (For more, see: Top Brazilian Stocks for U.S Investors .)

Meanwhile, things are looking quite rosy for the two BRIC economies in Asia. China, while slowing from its pre-credit crisis days, is still cooking at an estimated 7% growth rate. Driving that growth has been policies directed at its growing its consumer base rather than focusing only on industrial growth. Likewise, India has been propelled by vast changes in leadership and policies designed to cut red-tape. The two nations are expected to grow 7% and 6% this year, respectively.

Accordingly, O’Neil said in a recent Bloomberg interview that “Brazil and Russia’s membership of the BRICs may expire by the end of this decade if they fail to revive their flagging economies.”

Making a Play  

But you don’t have to wait until the end of the decade to kick Brazil and Russia out of your portfolio. Their chronic underperformance has hampered the total returns for BRIC-related equities since the credit crisis. And if the current conditions continue to hold, which several analysts believe that they will, they’ll continue to dampen the future. Overweighting China and India might be the prudent move. (For more, see: Investing in Russia: A Risky Game? )

The First Trust ISE Chindia ETF (FNI ) makes that easy. The ETF tracks a basket of Chinese and Indian stocks that trade on U.S. exchanges. More specifically, the top 25 from each nation. Top holdings include ICICI Bank Ltd. (IBN ) and Baidu, Inc. (BIDU ). Interest in FNI has picked up over the last few months as investors have grown tired of Brazil and Russia’s continued weakness. Overall, the exchange-traded fund makes an easy way to add the superstars in the one proud grouping. (For more, see: Asia’s Frontier Beckons .)

As for adding the nation’s individually, investors have plenty of choices.

For China, the $6 billion iShares China Large-Cap (FXI ) remains the top choice for investors and traders. However, the better play maybe its sister fund, the iShares MSCI China (MCHI ). MCHI tracks a much wider range of Chinese stocks, including large and mid-cap firms. This provides exposure to roughly 85% of the entire Chinese market available to international investors. Currently, MCHI holds 142 different stocks. Expenses for the fund run at 0.62%. (For more, see: China ETFs: Get In as China Matures .)

For India, the choices are equally as broad. However, the leading fund — the WisdomTree India Earnings Fund (EPI ) — is a great pick. EPI uses a smart beta index to screen for the best stocks to own within the nation. In this case, EPI focuses on rising earnings as well as the quality of those profits. That focus allowed EPI to return nearly 31% in 2014. (For more, see: Top Indian Stocks Traded in the U.S. )

Finally, small-caps can be a way to play the real domestic economies of India and China. Many of these names are consumer driven and receive all of their revenues from their respective nations. Both the Guggenheim China Small Cap ETF (HAO ) and Market Vectors India Small-Cap ETF (SCIF ) can be used to access this area of the market.

The Bottom Line

While the BRICs showed great promise, the time may be here to say goodbye to Russia and Brazil as their economies continue to falter. For China and India, though, the good times continue to roll. For investors, overweighting the duo makes perfect sense going forward. (For more, see: India is Eclipsing China’s as the Brightest BRIC Star .)