Spanish Clark Kent is the Superman of Latin ETFs (part 5)

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 USD 1.5 billion under management in less than five years.

[continued from part 4]

Nick Slepko:  With the Global X FTSE Andean 40 ETF (NYSEMKT: AND), I understand why Chile accounts for the largest share [~51%] of the assets because their companies are more pan-regional and their highly-competitive companies are driven to expand outside their small, sophisticated home market quickly (like the Dutch historically).  However, why is Peru such a small portion?

Bruno del Ama:  If you look at the market capitalization and GDP of Chile, Colombia and Peru, Peru is the smallest of the three.  Additionally, if you look at the ratio of market capitalization to GDP, Peru also has the least developed capital market.  As a result, there are not as many large, public investment opportunities there as in Chile and Colombia – yet.

Slepko:  When I visited Chile it reminded me in so many ways of California (when it was good – before it became America’s own private Venezuela).  Why is it so awesome?  It seems like if Colombia and Peru do some basic things right, there is no reason why they won’t do well.  But what is Chile’s secret (they are barely even a country)?

del Ama:  Our view is that there are two factors in particular that have had an important impact on Chile.  The first is a secular commodities bull market that has been going on for some time now – with copper in particular (and Chile is one of the world’s copper superpowers).  This has created an excess of tax profits which have combined with great government leadership that recognized its unique environment and wanted to prepare for the boom-and-bust periods linked to the copper economy.

In part, they looked at Norway, a resource rich economy that experiences a lot of pressure on its currency and generates a lot of excess profits when commodity prices are high.  Like Norway did, Chile has set up a sovereign wealth fund with the specific purpose of supporting the economy when the good times are over, which allows them to essentially balance out a highly cyclical economy.  They have used those excess profits well – for developing education and infrastructure and being very disciplined with the management of the funds.

Chile is in essence modeled after Norway, which is one of our favorite developed markets in Europe, and for which we have also developed an ETF, the Global X FTSE Norway 30 ETF (NYSEMKT: NORW).Norway has similar dynamics with strong exposure to commodities and is home to the world’s largest sovereign wealth fund.

Slepko:  You have a Norway ETF and a Nordic ETF.  You have an Andean ETF, but why no Chile ETF?

del Ama:  Originally, when we were bringing our Colombia ETF to market, we also wanted to provide a Chile ETF, but there was already a good Chile ETF operating in the market.  Similarly, by the time we had all the SEC approvals to set up a Peru ETF, there was already one that made it to market before us.  Our philosophy is that if an already existing ETF is structured well, then there’s really no way to add value with another similar ETF.  In fact, a second, similar ETF would probably add confusion to investors – this runs counter to our objective of adding value to investors.

By focusing on the most attractive region in Europe in our opinion, our Global X FTSE Nordic Region ETF (NYSEMKT: GXF), which provides exposure to the leading firms in Norway, Sweden, Denmark and Finland, has now passed its 3-year anniversary and is up by 35% since inception despite all the problems in mainland Europe. 

[continued in part 6]



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.

blog comments powered by Disqus