Indonesia & Russia Wax Brazilian
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After spending over half a century pioneering commodities and other global investments, Van Eck Global has spent the last several years developing exchange-traded products and become the fifth largest ETP provider in the US (and the eighth largest worldwide). Building off their experience developing USD 25 billion in ETFs, their Market Vectors team discusses their reasoning and outlook on the future of frontier and emerging market opportunities.
Nick Slepko: Van Eck has done well with Indonesia and Russia – both of which are quite different places (even if you drill down on the specifics of their oil assets which dominate the economies). How has your experience with the Indonesia Index ETF (NYSEMKT: IDX) and the Indonesia Small-Cap ETF (NYSEMKT: IDXJ) compared with the Russia ETF (NYSEMKT: RSX) and the Russia Small-Cap ETF (NYSEMKT:RSJX)?
Van Eck Market Vectors Team: Investing in different market cap segments is not new, so we just tried to apply the model to large markets where we were noticing investor interest. Often in emerging markets, the smaller caps capture what is going on in the domestic economy, the consumer economy. Whereas the megacaps tend to be different, global story. For instance, we have the Brazil Small-Cap ETF (NYSEMKT: BRF), but besides feeling that the large caps were adequately covered in the market place at the time, we felt that in 2009, Brazil was interesting not because of its global companies which were caught up in the financial crisis, but because its consumer, local sector was thriving. It was a whole different story domestically. This was the similar logic we applied to Russia and Indonesia. Currently, investor interest is on Brazil’s domestic market, but we believe similar trends in Russia and Indonesia will eventually get the attention they deserve. After our large cap ETFs for the two countries were successful, we also started to notice domestic trends and that is why we set up these small cap ETFs originally.
Since being established in 1955, Van Eck has historically been an active mutual fund manager, particularly of natural resources, hard assets, and gold. Our fourth ETF we launched was Russia [the previous ones had been commodity ETFs]. When we started planning it in late 2006, there was no Russia ETF and in our eyes it certainly warranted one and it was an area we knew since we had been investing in the space for years.
A place like Indonesia was originally compelling to us because it was the fourth most populous country in the world with a lot of political and economic reform going on – and there wasn’t a single ETF covering it. We thought it would be worth offering it to investors.
Both [Russia and Indonesia] are different places, but I think one of the benefits we try to communicate to the marketplace is that if you decide to invest in one of these countries, that the methodology we are offering is a good way to do that. Our ETFs and their indexes are diversified, liquid, and transparent.
Slepko: Is this not the case with other ETF providers?
Van Eck: Recently the trend has been for some ETF sponsors to venture down the self indexing path. However, for Market Vectors the rationale for self indexing was to apply what we feel is a superior index construction methodology to most of our ETF product line-up.
Slepko: Going forward, do you see the large cap or the small cap country ETFs attracting more investor interest?
Van Eck: Brazil is an older ETF that got its start under better conditions than our Russia or Indonesia ones. Emerging markets along with the global economy have had a tough time this year, but if things improve in the developing world then investors are likely to be more prone to checking out what is available in those places. If they like how our Brazil ETF has developed, they will probably have similar expectations for our other small cap country ETFs.
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. Is this post wrong? Click here. Think you can do better? Join us and write your own!