Spanish Clark Kent is the Superman of Latin ETFs (part 4)

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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.

[continued from part 3]

Nick Slepko:  With your Global X FTSE Andean 40 ETF (NYSEMKT: AND), why do you restrict yourself by tying it to a specific index, especially if you want to include Panama as part of your vision.  If you want to add Panama’s Copa (NYSE: CPA), the JetBlue of Latin America, or Panama’s Bladex [Banco Latinoamericano de Exportaciones] (NYSE: BLX), the pan-Latin American financial institution, why not do it?

Bruno del Ama:  That is the decision of the index provider and not ours in their aim to provide representative exposure to the Andean region.

Copa Airlines and Bladex are great potential components.  Not only is Copa a major Panamanian company, but it is extremely active in Colombia following its purchase of AeroRepublica, as well as Peru, Chile and other countries throughout the region.

Bladex is a bank focused on trade finance, so again a great potential component given Panama’s long standing role as a hub for financial institutions and its significant role in trade, especially with the Panama Canal. Bladex is very active in trade finance throughout the Andean region and has offices in several markets including Colombia and Peru.

Slepko:  You and I agree that there is a misperception about Colombia and the wider Andean region’s potential in the United States.  How do you get Americans to take notice of the Global X FTSE Colombia 20 ETF (NYSEMKT: GXG)?  The ETF is up over 200% since inception, is that enough to make investors notice the Colombia ETF?

del Ama: Everybody may not like Colombia, but everybody likes making money. This was our first product, we brought it to market in February 2009, which was about a month before the market bottom.  The fund grew slowly from a couple million in assets to about ten million during that time.  But at the time Colombia was outperforming most markets around the world, and when people saw that, they started to think maybe they should pay attention to Colombia. 

According to the 2012 Bloomberg Riskless Return Ranking, Colombia has been Latin America’s best performing equity market over the last 10-years, 5-years, and 3-years with a cumulative return of 1600% since 2002.  Obviously, those kinds of returns don’t go unnoticed and people are starting to realize that something is going on in Colombia. Now, GXG has around USD 200 million in assets.

Slepko:  When I visited Colombia last year, I was surprised at how modern and functional the cities were.  Whereas, in other places with a similar reputation like Sri Lanka which when its peace accord was signed the Colombo stock market jumped 125% – the growth comes from starting from almost scratch.  But in Colombia, the expansion appears to be based on more than just fixing infrastructure that was destroyed in the fighting, but there are actual companies an American would recognize as formidable international corporations with governance and everything already there.  It’s not Africa, and I’m curious if your Colombia 20 fully captures what is going on in Colombia. 

del Ama:  I think what’s happened with market returns and valuations in Colombia is a once in a generation re-pricing.  We moved from a place that was a virtual warzone to a safe, stable, rapidly growing economy with rule of law and the other basics you want to see when you look at emerging market investments.  I think the fantastic returns we’ve seen over the last decade are not going to continue at the same pace, but I still think there is a perception discount on Colombia and it will still be one of the fastest growing economies in the world.  Plus, there are great [local] management teams working with a highly educated population and a capable set of Colombians that are returning home from places like the US as the local economy continues to expand and improve. 

Infrastructure connecting major economic centers in Colombia is still limited, though it is decent within the cities and they are building it out and upgrading throughout the country.  They are looking at another USD 100 billion in infrastructure investments to alleviate the bottleneck they are experiencing in their growth potential.

I think our ETF does provide access to this story on the ground – very much so.  In contrast to Argentina, Brazil, or Chile, if you look at the list of Colombian companies and its shareholders you will see a very domestic, ground-up economy.  You haven’t had the situation you often see in other Latin-American markets where companies from North America and Europe have come in and snapped up a lot of local operators and flown in their own management teams or merged them with their global business.  In Colombia’s case, you have a lot of home grown management teams, more so than most emerging markets and this gives you more access to what’s going on in the local domestic economy and has created management teams that know the market and the region very well. 

[continued in part 5]

 

 

 


Nick Slepko (hukgon) has no position in any company mentioned here at the time of publication.  The Motley Fool owns shares of Bladex. 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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