The upstart firm plans to focus on places like the Philippines, Colombia, Peru, Egypt and Nordic markets where little, if any, competition exists.
The exchange-traded funds marketplace is dominated by a select group of big providers. Still, new entrants are coming into the ETF market, launching a wide range of niche investment strategies.
Global X Management Co. LLC, through its Global X Funds group, plans to be the next, with a group of international country and region funds on file at the Securities and Exchange Commission.
IU.com recently spoke with the company's CEO, Bruno Del Ama, about the company's global road map for success in a tough ETF market.
IU.com: Of the 114 ETFs launched this year, the average market capitalization was $25 million at the end of October, according to Morgan Stanley data. How is it possible to enter the U.S. ETF market at such a tough moment for smaller ETF sponsors?
Del Ama: We have to be careful when we talk about saturation in the U.S. ETF market. I would define any copycat ETF with an undifferentiated distribution strategy as likely to be a victim of saturation, and there are certainly a fair amount of ETFs in the market that fall into that category. However, there is room for innovation, and significant growth potential in the U.S. ETF market. I do not think we will call this the point of saturation when we look back at the industry 10 years from now.
IU.com: What is unique about the Global X ETFs that will never lead to them being confused with so-called "copycat" portfolios?
Del Ama: Our family of international equity index ETFs provides access to markets that are not currently offered by any other ETF sponsor, including Colombia, Egypt, the Philippines and the Nordic region.
IU.com: Global X Funds also has in registration a Peru country fund. iShares recently filed for a Peru fund also, based on the new MSCI All-Peru Index. What is your index approach, and how is it different from those employed by the ETF heavyweights?
Del Ama: We partnered with FTSE to develop a methodology specifically designed to work well with country-focused ETFs. Specifically, we balanced RIC-compliance requirements with liquidity needs, which is particularly important as you get into smaller emerging and frontier markets.
The MSCI indexes were problematic to create ETFs for some of the smaller, individual countries, as you would not have a sufficient number of constituents for countries like Colombia or Peru. MSCI adjusted its methodology with the introduction of the "MSCI Global Investable Market Indices" introducing a broader coverage of the market more along the lines of the FTSE indexes, but this created some inconsistency in the current lineup of iShares MSCI ETFs, where some ETFs seem to track the new investable indexes and some the older MSCI indexes. The FTSE indexes have been specifically designed to work well for ETFs tracking these smaller markets.
IU.com: Since your lineup is global in nature, do you plan on being a global ETF company in terms of asset gathering?
Del Ama: We think about the ETF market in global terms. Our premise is that it is basically impossible to list foreign ETFs in the U.S., but it is fairly easy to list U.S.-listed and regulated ETFs on certain foreign exchanges. We will be listing many of our ETFs locally in places like Colombia and the Philippines, often providing institutional and retail investors in these countries with their first ETF. We are effectively targeting two markets with one product: a niche international ETF for the U.S. market, and the market benchmark for local investors through the local exchange. Listing the ETF in the U.S. and the local market should increase the size and liquidity of these ETFs.