Spanish Clark Kent is the Superman of Latin ETFs (part 6)
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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 5]
Nick Slepko: But with Brazil and China where there are a number of ETFs being offered by dozens of ETF providers, Global X has decided to offer a number of targeted, specific sector ETFs [financials, consumer, mid-cap, etc.] for investors interested in those countries. Why not offer more specific sector ETFs for countries like Indonesia and Chile?
Bruno del Ama: Limited interest and limited investment options. Something like a Chile or even an Andean regional consumer product ETF would be difficult because it would appeal only to a very narrow set of investors, and in many cases there are not yet enough publicly traded stocks in specific sectors to create a strong product. The economies of Brazil and China are now large enough where sector investing is possible in an ETF structure and where investors are looking to make more targeted investments.
On the other end of the investing spectrum, one of the things we see all the time is that when investors (even fairly sophisticated ones) want exposure to Brazil they almost always use the iShares MSCI Brazil ETF (NYSEMKT: EWZ). Although it is a good product, many investors fail to realize that about 30% of their exposure in this product is in two global commodity companies that are really not connected to the local Brazilian economy: Petrobras (NYSE: PBR) and Vale (NYSE: VALE). What you are really doing with this type of investment is taking significant commodity exposure risk, and not really achieving domestic exposure to Brazil. So it is a question of what type of exposure investors are seeking: if the goal is exposure to the domestic Brazilian economy, there might be better ETFs – like our Brazil Consumer ETF (NYSEMKT: BRAQ) which focuses on a specific segment of the domestic Brazilian economy.
Slepko: How do your China sector-specific ETFs compare and contrast with your Brazilian sector-specific ETFs? For instance, does your experience with your China Consumer ETF (NYSEMKT: CHIQ) differ from your experience with your Brazilian Consumer ETF?
del Ama: Investors in both cases see the value and potential and story of the rise of consumers in emerging markets as their incomes increase and they start to spend more across income levels.
One of our [NASDAQ] opening bells, was attended by a professor of Chinese economics at Columbia University. He was saying that one of the analyses he runs involves word counts of China’s ten year [economic development] plans. Over the last couple of plans, the word that is trending the highest is “consumer” and it is correlated with a heavy emphasis by China’s government on developing their domestic market.
If you look at the US, 70% of GDP comes from domestic consumption. In China, it’s around 30%, so there is tremendous room for growth. Even in an export-driven economy like Japan consumption accounts for about 60% of GDP.
Slepko: Why has the China Consumer ETF attracted almost six times more assets than your Brazil Consumer ETF – even though in per capita terms Brazil is a more lucrative market?
del Ama: Perception and to some extent it’s scale since China is [in absolute terms] a larger market – the second largest economy in the world after the US. Also, our China fund is older [listed on 30 November 2009] than our Brazil fund [7 July 2010], so it’s had more time to develop.
[continued in part 7]
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. Motley Fool newsletter services recommend Petroleo Brasileiro S.A. (ADR). 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.