Spanish Clark Kent is the Superman of Latin ETFs

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Colombia has been the cornerstone of ETF superhero Global X Funds’ success.  After leaving Madrid, surviving Wharton, and picking up a CFA on his way to co-founding Global X, CEO Bruno del Ama and his team currently oversee 31 ETFs which have brought USD 1.5 billion under management in less than five years.  While Global X's recent ETF offerings of Argentina and Greece have been controversial, it all began with similarly controversial Colombia (at the time).  Latin America's fastest growing economy and the silver largely mined in the New World by those included in its Global X Silver Miners ETF (NYSEMKT: SIL) are the twin pillars on which rest Global X's award-winning international and commodity ETF strategy.

Bruno del Ama, CEO and Co-Founder of Global X Funds

Nick Slepko:  Was Colombia the reason Global X ended up doing so many exchange-traded funds, or did you want to do ETFs and the Global X FTSE Colombia 20 ETF (NYSEMKT: GXG) was the obvious first choice?

Bruno del Ama:  Colombia was the trigger for us to start looking into ETFs in the first place, and Colombia became the genesis of Global X Funds.  My business partner, Jose Gonzalez, managed a broker dealer with many Latin American clients – both individuals and institutions.  In 2007, many of his clients were interested in a product that was essentially a capital guaranteed note of the only Colombian ADR [foreign stock traded on a US exchange] that existed at the time, which was Bancolombia (NYSE: CIB).  However, while Bancolombia has been a great investment, the product itself was just terrible.  The fees were high and there was no diversification, but even with these issues there was significant demand for it.  So, he called up the clients to get a sense of what they were trying to achieve – many of which were wealthy Latin American investors that had capital offshore in places like Panama, Miami, and New York.

Basically, what he found was that these highly informed and connected individuals were on the ground and aware of the massive security turnaround in Colombia, understood the tremendous growth that was taking hold, and they wanted to participate in the Colombian market - not only with their own businesses in Colombia, but with the country’s equity market in general.  At the time, the only real opportunity for their offshore capital was the Bancolombia ADR listed on the New York Stock Exchange.

[Jose] figured there had to be a better way to serve the investors and clients interested in Colombia. Even though he didn’t have any particular affiliation with exchange-traded funds at the time, he thought that an ETF would be the best product because it would have low-fees, diversification, and provide cost-effective access to the local Colombian market.  Also, by being listed on the New York Stock Exchange and regulated by the SEC, it would provide a lot of comfort to these sophisticated investors.

He then called up the large ETF providers like iShares [then owned by Barclays (LSE: BARC)(NYSE: BCS)] and said, “I have a lot of clients that want exposure to Colombia and they are getting exposure indirectly through products that are not really ideal for them.  Would you please bring to market a Colombian ETF because I have a lot of assets to put into such a product.”

[The big ETF providers] showed no interest whatsoever.  While all this was happening, I was presenting investment opportunities to clients for a company I worked with.  We had developed a presentation for possibilities in Colombia, Peru, Ecuador, and Bolivia.  At one meeting with a major US corporation, their chief risk officer said, “Listen, before we begin, I don’t even want to hear about Colombia.”

Slepko:  This is in 2007?  When Ecuador was still having problems keeping the same president for more than a year – and Bolivia was, well, Bolivia?

del Ama:  I know.  The bottom line is that still to this day, people hear “Colombia” and they have these images of what they see in the media – that it’s some kind of war zone.  Even today, I mention Colombia and people’s eyes will glaze over and they usually say something like, “Why would you even touch that?”  You can go through the data and all the statistics, but really all you can do is say, “I’m going to book you a flight to Bogota or Medellin, and you can see it for yourself.”  The Americans and the Europeans just have a complete misunderstanding of what’s going on in Colombia.  There’s a real discrepancy between perception and reality. That is not to say that this misconception is not grounded in some reality from its violent past, but Colombia is a very different country today than it was twenty years ago. Some people seem to think that Ecuador and Bolivia are better simply because they have no knowledge about them, but they think they know about Colombia because of the movies they have seen.

Slepko:  So, people think the devil they think they know is worse than the devils they don’t know at all.  How do you challenge that sort of bias?  I’ve been to really terrible places like Afghanistan and Congo and the Paris suburbs, but when I got to Colombia, my mind was blown.  It’s so great by every measure – and getting better in tangible, substantial ways every day.  After Turkey, Colombia is easily my top pick.  Yet, everyone seems so fixated on Venezuela’s oil as if that was the only thing in Latin America outside of Brazil worth investing in.

del Ama:  Well, it’s in our name, Global X.  We look for global opportunities. The misconceptions about Colombia create a huge opportunity. We educate our clients about the markets that we participate in, but at the end of the day we are not trying to win a popularity contest by participating in the most fashionable markets, we are trying to make money for our investors.

Like a lot of the Motley Fools, I’m a value investor too.  When you buy something, it should be for the right price, and you shouldn’t over pay.  Diversifying is also an important part of an investing strategy.  If you can buy stocks and follow them individually that’s great, but ETFs are less expensive than mutual funds, and they are liquid and transparent passive investments that are a cost-effective way to access your target investment themes.

[continued in part 2]

 


Nick Slepko (hukgon) has no position in any company mentioned here at the time of publication. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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