Spanish Clark Kent is the Superman of Latin ETFs (part 3)

Nick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

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 $1.5 billion under management in less than five years. 

[continued from part 2]

Nick Slepko:  How did you develop your Global X FTSE Andean 40 ETF (NYSEMKT: AND)?  And why would I go with the Andean 40 [which is ~51% Chile, ~28% Colombia, and ~21% Peru], rather than just buy the ETFs for the three countries that have the highest exposure to their local markets – Global X FTSE Colombia 20 ETF (NYSEMKT GXG), iShares MSCI All Peru Capped Index Fund (NYSEMKT: EPU), iShares MSCI Chile Investable Market Index Fund (NYSEMKT: ECH)?

Bruno del Ama:  Either option is attractive depending on what each individual investor may want to achieve.  When we first identified the regions of the world we liked and thought would do well a decade from now, there were two – the Andean region and the ASEAN [Southeast Asia] region.

When others talk about BRIC [Brazil-Russia-India-China] as a multi-country region, we don’t think it makes much sense a decade from now.  Countries like India and Russia are completely different.  They don’t necessarily work well together as a package.  In Brazil and China’s case, we have taken the opposite approach and provided ETFs that provide targeted access to the financial, consumer, and mid-cap sectors of their economies.

Andean and ASEAN make sense as regions in a number of both micro- and macroeconomic ways (as well as at a political level).  In the Andean region, you see the Chile, Peru, and Colombian exchanges getting together, which would have a market cap of almost USD $670 billion, half the size of Brazil’s USD 1,300 billion, but larger than Mexico’s USD 460 billion.  You also see a significant amount of cross-border trade, M&A activity, and political reforms designed to increase integration between the countries. These are reasons why we think the Andean countries make sense as a region, and we expect this integration to become much stronger in the years to come.

Still, Brazil is the one country in Latin America that everyone focuses on – and there’s a group-think that is taking place and it creates a bit of a bubble effect of over-focus and over-build and over-pay for Brazil-type assets.  With Colombia as the second largest economy in South America, we see this second Andean option developing out of Chile, Peru, Colombia – and Panama.

Slepko:  What about exposure to copper?  It's the basis for much wealth and anxiety in the Andean region, particularly in Peru and especially Chile.  In fact, it could be argued that although the Andean ETF has less than 10% direct exposure to copper, up to half of the holdings could be highly dependent on the whimsy of the global copper market, as copper accounts for a third of Chile's government revenue, ~50% of Chile’s export revenue, and ~40% of world copper production.

del Ama:  We want to provide an option to those people who are sensing that the Andean region is undervalued and a better bet.  For those that want to make individual bets on specific countries, that’s valid too. Chile is the most developed market in all of Latin America, and has done a lot to isolate themselves from commodity shocks related to the copper market.

Incidentally, many companies in the Global X Copper Miners ETF (NYSEMKT: COPX) have mining operations in Chile and Peru, such as Southern Copper Corp (NYSE: SCCO), which is one of the core holdings of the Andean ETF.  [Southern has the highest exposure to the region of the six companies listed in the Copper ETF holdings, though the ETF is remarkably diverse for copper as only 25% of the current net assets are linked to the region.] 

[continued in part 4]

 

 


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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