Global X CEO: Lehman Fall Helped ETFs

September 16, 2013

 

IU.com: Why start an ETF business right at the onset of the crisis?

Del Ama: We started working on the business in late 2007, early 2008, so you could already see some of the stresses happening in the financial markets. But, obviously, it wasn’t as bad as it was in October 2008. But from day one, we’ve been driven by the same core principles that drive us today, which are: focusing on our clients and innovation.

I think the only reason we’ve been successful is because we’re doing things that are different—because we’re no copycats. Also, because we’re focused on doing things that are not just different for the sake of being different, they’re useful to investors.

IU.com: It’s interesting that you would kick off your ETF business with an ETF focused on Colombia. Was it just a matter of opportunity, or some sort of expression on the emerging markets at the time?

Del Ama: Back at that time, talking about structured products, my partner in the business owned a broker-dealer that had a lot of clients investing in a structured product based off of one Colombian ADR. And it was just a horrible investment from his perspective. There was no diversity; it had credit-risk issues; it was expensive.

So he tried to understand what those clients were trying to achieve, and worked on finding a better way to achieve the same objective. His conclusion was that a low-cost ETF providing diversified access to the Colombian equity market would be ideal.

He reached out to ETF issuers, but they didn’t express an interest in developing this product, and that’s how he and I started talking. Colombia was the market that, in our opinion, suffered very dramatically from a perception gap because of the drug cartels, and that perception created a very attractive opportunity. In our opinion, assets were mispriced in Colombia. But the reality was just a market that was growing very, very rapidly and it’s actually one of the most vibrant markets in Latin America today.

Back in 2008, in an interview with Index Universe, I said the ETF market was not saturated. At the time, I said I thought we’re still very early on in this game, and it’s certainly playing out that way.

IU.com: Global X has gathered $2.3 billion in total assets since its first ETF in 2009. When you look back at the past five years as an ETF provider, what do you think has worked and what hasn’t?

Del Ama: What generally works is doing things that are innovative; meaning, not offering the second and third or seventh S&P 500 fund, but something that has value and that addresses clients’ needs. Those are our two key principles.

In that context, launching a fund like our super dividend ETF, which today is our largest ETF, was a good idea. It was in an environment where you have massive amounts of quantitative easing, very low interest rates and a very challenging environment, where most of the private capital is held by baby boomers, but they can’t generate from traditional fixed-income investments the types of returns that they need to retire.

Our super dividend ETF pays a yield of about 7.5 percent after fees and expenses, and comprises 100 securities, equal-weighted, allowing for a certain amount of diversity. Those are the types of things that provide value to clients, and the types of things that have worked.

As we evolve from an entity that was focused initially on very tactical plays or very specific exposures like the Colombia exposure, to things that can be a little bit more broad like the super dividend ETF, or solutions like the MLP space-focused MLPA (MLPA | N/A)—which was innovative in a cost sense, as it came with a much lower expense ratio than similar MLP ETFs—and MLPX (MLPX | N/A), our latest product in the MLP space that’s not only a low-cost alternative but also solves some of the tax complexities within the space.

That’s key, and obviously, we also brought out some niches products that we think are good, but that just didn’t end up attracting the amount of capital that we anticipated.


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