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BRIC Investment

How to choose a stock mutual fund? Take an interest in individual stock titles

Choosing a suitable equity open-end mutual fund can sometimes be a science. However, it is enough to clarify what you would be able to invest in without a fund and decide on that basis.

Choosing the right equity fund is not easy. Investors are often lulled by past returns, which do not guarantee the future performance of the fund. Another group of investors will be lured to investment trends. It is fashionable to invest in funds associated with the BRIC or BRICS countries or in countries such as Indonesia, South Korea or Vietnam.

If you decide to buy unit certificates and invest your other money in a fund focused on the BRIC countries (Brazil, Russia, India, China), do you know information about the local economic situation? Another question is aimed directly at the knowledge of the companies whose shares the fund buys.

Do you know companies like Cnooc Ltd, Starhub Ltd, Pfizer Inc., Oracle Corp, Pdg Realty Sa? As an investor, should you ask questions such as the country in which they operate and the industry in which they operate?

Some companies like Pfizer or Oracle are not unknown to Central Europeans, but what about Starhub or Cnooc? Are you willing to take risks with funds that are made up of titles you’ve never heard of? Or do you prefer funds that have shares of Erste Bank Group, ČEZ, ExxonMobil, Bank of America, Komerční banka in their portfolio?

It is nice to succumb to the euphoria of analysts and economists over how the gross domestic product of the BRIC countries is growing. But do you believe, for example, Russia or China that none of the companies whose shares are owned by the fund in which you invest money will be national?

The same applies to fund investments as to shares

The same rules apply to fund investments as to shares. Take an interest in the individual titles that make up the fund. You don’t have to do a detailed industry and country analysis like when buying stocks. But you should have a basic overview of what it looks like in one country or another. And from an economic and political point of view.

What such a brief analysis of investment opportunities might look like, we tried to point out China and mobile phones. All you have to do is use common sense and think about the investment a bit.

Case study: China and mobile phones

It works well for an ignorant investor when he imagines that his fund should be composed of telecommunications companies operating in China. From primary school, we are forced to say that the People’s Republic of China is a huge country with a population of 1.3 billion. In 2009, according to the CIA World Factbook, 747 million mobile phones were in use in China alone.

The penetration of mobile phones in China shows that even a high volume of devices does not necessarily mean a win for a potential investor. Let’s start with the idea that 300 million Chinese can be considered a kind of middle and upper class. This group of people has money that they can call or spend on other services related to telecommunications. Often one Chinese from this group will have two mobiles. One personal and the other business. However, there is another large group of around 300 million people living in China who are in poverty and poverty. These are mainly peasants living inland. The remaining 700 million inhabitants of this most populous state on the planet are somewhere among the above groups.

From this last and largest population group, perhaps 100, perhaps 200 million new customers of telecommunications companies will be recruited over time. The question remains how much money the average Chinese will be able to spend on telecommunications services and also how fast this market will grow, how long and when the imaginary ceiling will occur.

Like the example above, you can “graft” your initial investment analysis to anything. All you need is an up-to-date overview of the world and finding more information.