Retirement GPS by Aaron Katsman

Author:Aaron Katsman
Language: eng
Format: epub, mobi
Publisher: McGraw-Hill Education
Published: 2013-03-25T16:00:00+00:00

INTERVIEW WITH BRUNO DEL AMA, CEO AND PORTFOLIO MANAGER OF GLOBAL X FUNDS

Q: What has made you focus on spaces (countries) that “traditional” ETF providers neglected?

del Ama: As a company, we can’t really add much value by creating “me-too” products or another S&P 500 ETF, so we often seek out areas where we see significant growth potential that other ETF providers may have overlooked. At Global X, we believe that the primary way we can add value for investors is by creating products that provide access to areas of the market where we see significant growth opportunities, and where the current investment options may be limited. Our first ETF, the Global X FTSE Colombia 20 ETF (GXG), is a great example of this belief, as Colombia was a country where we saw a tremendous growth opportunity, but where many other providers saw a higher-risk country with a history of security issues. We believed that the security situation and political environment in Colombia had already materially improved and were significantly better than investors perceived. It is therefore not a surprise that Colombia has been one of the best-performing markets in the world since we launched this ETF. At the time we launched the product, there really was no easy, cost-efficient way to invest directly in Colombia. There were a couple of ADRs that traded on the New York Stock Exchange, but the options were limited. Even if you were a hedge fund or an institutional investor, the cost of operating directly in Colombia was fairly prohibitive. The combination of the growth opportunity and lack of investment options for Colombia created, in our opinion, the perfect environment to create an ETF that would track the local market.

Q: Another such product is your SuperDividend ETF (SDIV), which is truly globally diversified. In a world where investors are desperate for yield, there is nothing like it. What was behind the reason to launch it?

del Ama: SDIV was inspired by a very successful hedge fund manager. By his own account, a large part of this manager’s success was due to what he described as an entire market segment that was overlooked by most investors—“super-dividend” (approximately 8 to 15 percent) equity securities. Investors often perceived these high-yielding companies as higher risk, but the historical data did not justify this perception. While this yield/risk relationship holds true in the fixed-income space, where higher yield is achieved only by taking additional risk (lower credit quality, higher duration, and so on), historical analysis shows that as a group, super-dividend equities have outperformed lower-yielding equity groups by a significant margin over the last 10 years. Even more counterintuitive was the fact that the volatility of super-dividend equities was not higher than that of the other groups in many of the time periods, which implied that investors’ perception of this entire space was not supported by the historical data. Of course, when designing the fund itself, we recognized that both country and company-specific risk were important diversification concerns, and this is what prompted the idea of making SDIV a global fund and equally weighting all of the 100 components.

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