(Bloomberg News) Jim O'Neill ushered in a decade-long investment boom in 2001 when he coined the term BRICs for the largest emerging markets. This year, a lesser-known acronym that the Goldman Sachs Asset Management chairman is helping to popularize has taken over for many investors.
The so-called MIST nations -- Mexico, Indonesia, South Korea and Turkey -- are the four biggest markets in the Goldman Sachs N-11 Equity Fund. Opened in February, 2011 to invest in what O'Neill considers the next big 11 emerging markets, the fund has climbed 12 percent this year, compared with a 1.5 percent gain in Goldman Sachs's fund for Brazil, Russia, India and China.
"We see steady inflows into the Next 11 fund each week," O'Neill, 55, said in a phone interview from London. "It hasn't been affected by the disappointment in the U.S. and obviously the European markets especially, and all the disappointment in some of the BRIC markets."
O'Neill said he came up with the idea for an N-11 fund on a trip to China and South Korea two years ago as a way to help investors benefit from growth beyond the BRIC nations that had dominated emerging markets investing. With populations that for the most part are younger than the U.S. and Europe and have higher birth rates, fueling economic expansion, the N-11 nations are emerging from the shadow of the BRICs, where growth is slowing and investors are pulling out funds.
Outpacing BRIC
The MIST economies more than doubled in size in the past decade, topping Germany last year. In Mexico, Latin America's second-biggest economy, record auto exports are helping growth outpace Brazil's for a second year amid waning Chinese demand for the South American nation's commodities. Indonesia's domestic spending and investment helped the nation's economic growth accelerate to 6.37 percent in the second quarter, surprising economists who forecast a slowdown.
Besides the MIST nations, the N-11 countries include Bangladesh, Egypt, Nigeria, Pakistan, the Philippines and Vietnam. Iran is also a member, though Goldman Sachs says its fund doesn't invest in Iran because it isn't an open market for foreign investors. The nation is subject to sanctions imposed by the U.S. and European Union over its nuclear program.
Goldman Sachs's N-11 fund has beaten 93 percent of U.S.-based emerging-market equity funds this year, while the BRIC fund has lagged 89 percent of them, according to data compiled by Bloomberg. The N-11 fund has still trailed its benchmark, the MSCI GDP Weighted Next 11 ex-Iran Index, which has climbed 17 percent this year. The MSCI BRIC Index has risen 1.7 percent this year, more than the 1.5 percent gain for the Goldman Sachs BRIC fund.
Fuelling Growth
While outperforming them in growth this year, the MIST nations don't approach the BRICs in economic output or population. Total GDP for the MIST nations was $3.9 trillion last year, less than one third of the $13.5 trillion BRIC economies and compared with $7.3 trillion for China alone, according to data compiled by Bloomberg. In population, the MIST nations have fewer than 500 million people, compared with about 2.9 billion in the BRIC nations.
Goldman Sachs's N-11 fund had $113 million in assets and was invested in 73 stocks at the end of the second quarter, while the New York-based bank's BRIC fund had $410 million in assets and held 72 stocks.
While O'Neill isn't involved in either fund's management, they were built to capture economic growth in the nations he identified as likely to make the greatest increased contribution to global GDP. The MIST nations accounted for about 73 percent of N-11 GDP last year, according to data compiled by Bloomberg.
Paying Off
The investment strategy is paying off. Mexico's benchmark IPC Index has climbed 11 percent this year, compared with a 2.8 percent gain in Brazil's Bovespa. Turkey's ISE National 100 Index has surged 28 percent and Indonesia's Jakarta Composite Index has gained 7.4 percent, while South Korea's Kospi has increased 3.3 percent.