Global X Funds, based in New York, combs the world for unusual investment opportunities on which it can build exchange-traded funds. The firm recently rolled out the first ETFs that invest in Nigeria, Central Asia and Mongolia via companies that are domiciled in or principally traded in those areas, as well as through companies listed in markets such as Russia, Canada or the United Kingdom that derive significant revenues from Nigeria or Central Asia.
Known for focusing on commodity producer ETFs and emerging markets, the company has moved into income- and dividend-based products in the last year, and more diversification plans are afoot. The firm has $1.9 billion in assets under management and 35 ETFs.
Money Management Executive sat down with Bruno del Ama, the firm's CEO, to talk about the company and its strategy.
What's the thinking behind your product lineup?
We focus on bringing innovative ETFs to market that are not offered by anybody else and for segments of the market that we like and we think will do well over the next decade or so and generally out-perform the broad capital markets. Our first product was an ETF for Colombia. Colombians that had businesses in Colombia understood the tremendous turnaround that had happened there and the growth in Colombia so they wanted to invest back in their country. But for historical reasons a lot of their money was kept offshore in places like Panama, New York and Miami. So how do you invest back in Colombia without having your money physically in Colombia? The only way to do that at the time was via one ADR in New York.
How has your thinking about your product line-up evolved?
One of the things that we have achieved is to really diversify our exposure so we've gone from what was essentially a high beta exposure to now we have about a third of our exposure in mining commodity exposure, a third of our exposure in international products and about a third of our exposure in something that we didn't have anything about a year ago which is income and dividend products. We are much more diversified now than we were a year or two ago.
Do you expect Global X to maintain that product ratio?
I would expect if the status quo remains that we will grow the income and the international part of the business significantly faster than the mining side of the business. In addition to that there are other asset classes that we're looking at to do the same type of disruption that we've done in these asset classes by providing first-to-market exposures. I can't comment on what those are but there will be a fourth leg at some point.
As of mid-April, Global X was at the top of the list with the most launches for the year, four launches. Can you talk about those products?
On the income side of the business we did a U.S. version of our Global X Super Dividend ETF. The premise of that product is it invests in 100 companies globally that are amongst the highest dividend paying companies in the world. When you look at that universe of very, very high dividend payers as a diversified basket, they in fact are not necessarily more risky or they're just slightly more risky but you get a lot more total return out of those companies. So again it was a way for us to innovate in a space where there were a lot of products but in our opinion perhaps the most attractive segment of this space was not provided for.
What else have you rolled out this year on the income side?
A junior MLP ETF which is the small cap segment of MLPs.
What's happening with energy in the U.S. is just incredible. The U.S. will become energy independent. It's no longer a pipe dream, it's a reality that's really only become a tangible possibility over the last couple of years. The amount of natural gas production that we're generating through new techniques such as fracking and horizontal drilling, what's happening with oil production ... I think the latest estimate is that by 2017 the U.S. will become the largest oil producer in the world. It will also become a net exporter of natural gas when only three or four years ago we were building natural gas importing plants.
What's a small cap MLP versus large cap?
The exposure is slightly different. On the large cap, about 80 percent of the exposure is infrastructure. On the small cap, you move to about say 50 percent infrastructure, 50 percent exploration and production. And exploration and production really is significantly misunderstood in the marketplace because when you think about exploration and production energy you're thinking about wildcatter exploration type operations that are very, very high risk.
In reality, almost all of the exposure, exploration and production exposure, in MLPs is companies that buy old oil reservoirs where there is a well known amount of oil inside of that reservoir and it's really the large firms like the Exxons of the world where they sell it to smaller operators to extract what's left in there through the new horizontal drilling and fracking-type techniques.
You also have two new international ETFs investing in Mongolia and Nigeria.
Nigeria is a member of OPEC; it's the largest oil producer in Africa. It has an enormous population, over 160 million, so more than half the size of the U.S. population. There's a tremendous amount of growth coming out of Nigeria and incomes are increasing. You're starting to see people moving from poverty to staple-type consumption and a higher income level from staple type consumption to discretionary type consumption. And it's a resource-rich economy so it has a lot of the capacity to use excess taxes for those resources to build infrastructure and start moving up on the development stage. Clearly a high risk place, there's a lot of violence, there's a lot of issues.
It's a frontier market.
If markets do move from frontier to emerging, that's where almost a one-time re-pricing happens with regards to the valuations of those countries. If you are successful in identifying what are the frontier markets that will go to emerging markets, you get a massive increase in valuation and returns as an investor. So clearly it's a high-return, high-risk type investment.
Mongolia this year is expected to be the fastest growing economy in the world. It's very sparsely populated, but one of the richest parts of the world from a resource perspective so tremendous mining deposits across all sorts of deposits whether it is zinc, copper, uranium, et cetera. So again a frontier market, but tremendous growth coming out of that market.