Global X Launches Actively Managed Brazil, India ETFs

Global X ETFs launched a pair of actively managed stock ETFs focused on Brazil and India, as it hopes to take advantage of falling rates in Brazil and demographic trends in India. 

The Brazil Active ETF (BRAZ) and the India Active ETF (NDIA), issued last week, are the newest funds from Global X’s current push into actively managed funds. The funds join Global X’s 109 other ETFs, which hold $42 billion in total assets. The new funds will be the only actively managed exchange-traded funds exclusively focused on those countries. 

BRAZ launches at a time when Brazil is cutting rates after hiking them earlier and higher than other countries in the current cycle of rate hikes, providing a substantial boost to the country’s economy.  

NDIA hopes to take advantage of India’s demographic heft, having surpassed China as the largest country in the world this year, with 65% of its population under the age of 35.  

Global X believes active management will perform better in emerging markets than it does in general due to larger market inefficiencies in these countries’ stock markets. 

“We see Brazil as a strong 18- to 24-month tactical opportunity, while India is the best structural story in the world right now,” said Malcolm Dorson, head of emerging markets strategy at Global X and portfolio manager of both funds. 

Global X Sees Long-Term Secular Growth 

Brazil’s central bank first raised rates to fight inflation in August 2021, several months before the U.S. did so, and began cutting rates earlier this month. Dorson notes that Brazilian firms hold floating rate debt, so he expects cuts will increase profits, while bringing Brazilian investors back to stocks. 

Dorson’s investment thesis for India is based on long-term secular growth propelled by demographics. According to him, the nation’s large population of young people, and college graduates in particular, make it a prime beneficiary for the current effort to diversify supply chains away from China, especially as its manufacturing labor costs are 40% those of China. 

“Not holding India today is like not holding China 20 years ago,” said Dorson. 

Active management has often failed investors, with only a small percentage of funds generating risk-adjusted outperformance over the long term after fees. Dorson believes emerging markets may be an exception. 

As evidence, he points to the fact that the India and Brazil index funds underperform their benchmark by much more than funds like the SPDR S&P 500 ETF Trust (SPY). He also points to the high concentration of those countries’ MSCI indexes, which also hold large state-owned enterprises. Dorson argues these may be less efficient or responsive to shareholders. 

Yet outperformance may remain difficult. Both funds charge a 0.75% management fee. Moreover, at least in the last several years, emerging markets have majorly lagged U.S. markets. 

Contact Gabe Alpert at [email protected]