Think Global - Interview With Bruno del Ama - CEO of Global X Funds (LIT)

Bruno del Ama is the CEO of Global X Funds. Global X is an asset management company that develops and markets exchange-traded funds. Global X has been a pioneer in building ETFs that allow investors to gain exposure to emerging markets like Brazil and China as well as natural resources around the world. Global X recently launched a new Lithium ETF, Global X Lithium LIT, which had one of the most successful ETF launches of the year.

Bruno took some time to talk about Global X’s ETF offerings, electric cars and Peter Luger’s.

This interview is also available as an episode of the Benzinga Podcast.

Global X Funds is an asset manager focused exclusively on exchange traded funds for ETFs. Recently, Global X Funds surpassed the $300 Million mark in assets under management. The company launched its first fund in Feb 2009, and is one of the fastest growing ETF providers.

Global X Funds currently offers the highest number of ETF choices of any other fund family in China and Brazil, as well as flagship opportunistic funds covering Silver and Copper Mining, Colombia, and Northern Europe exposure. It has been rolling out innovative product after product in past months, and will continue to do so from what we can tell by their prospectus filings with the SEC.

Why did you decide to focus on these areas of the market and world?

The global markets are more difficult to access. It requires a lot more to gain this access. These are also some of the areas that we think are not as fully covered by existing ETFs where we can bring a little more information and useful tools for investors. As an example, in the U.S. market you have over 400 equity focused ETFs and when we brought our ETFs to market for China and Brazil there were maybe only a couple of ETFs and we thought that there may be a lot of sophisticated investors interested in these market which are second third or fourth largest after the U.S. and are growing more rapidly than the U.S. markets.

I’m sure a lot of our listeners new to the markets are wondering this. How exactly are ETFs made?

An ETF is obviously a basket of stocks and most ETFs are passive investments that track an index. When somebody buys an individual trade or a number of shares on an ETF they’re basically buying a participation on the fund; very similar to a mutual fund. Typically the way these ETFs are set up you have a seeding of the funds and it starts with some amount of money. Then they’re listed on a secondary market and a market maker takes bids and offers and starts selling some of that share that they have. Investors can typically buy shares on the secondary exchange of NYSE; that’s the largest market for ETFs. If you’re a very large, sophisticated investor, you can do it through a certain type of broker which is called an authorized participant. These are typically your large brokers such as Goldman Sachs, UBS, Morgan Stanley which sign agreements with the asset management company and they can come into the primary market and issue blocks of securities typically 50,000 or 100,000 share blocks.

We saw the Wall Street Journal front page feature in the Money & Investing section on Monday July 19th talking about the Global X Lithium ETF product. Can you summarize the investment theme you see in Lithium?

Lithium ion batteries are the most advanced battery technology today. Lithium is going to be the key resource fueling the renewable energy / clean tech /green movement, whatever you like to call it. It will be the raw material of choice for batteries going forward.

It’s very environmentally-friendly compared to existing nickel-metal hydride or lead-acid battery technologies, is one of the lightest metals, and can store three times the energy of competing materials. It can be charged and discharged hundreds of cycles without substantial degradation, and loses very little charge while idle, and has no memory effects.

90% of laptops and over 60% of mobile phones are currently powered with lithium ion technology, as are existing electric vehicles like the Tesla Roadster, and upcoming electric vehicle launches this year like the Chevy Volt and Nissan Leaf.

Revolutionary battery technology is key not just for electric cars, but for energy storage overall. Warren Buffett recently made a lithium battery technology play through Berkshire Hathaway holdings, and his advisor David Sokol has been quoted as saying that (1) he believes the market is ready for electric cars, and (2) the most obvious secondary usage for battery technology of electric cars is to store intermittent renewable sources of energy like wind and solar.

Do you in fact think the market is ready for electric cars?

There is obviously a massive migration and a major change in the way most economies operate their energy. According to studies by the Boston Consulting Group, most consumers want to break even in three years or less on a switch from hydrocarbon to electric cars, and several major countries have rolled out incentive programs to make that possible. Credits range from $3000 per car in China, to $7500 per car in France, Germany, UK, and US, to certain Japanese programs up to $10,000.

Furthermore, governments are stimulating the supply side of the electric vehicle market. The US government gave $2.5 billion in stimulus grants to electric vehicle related advancements like battery technology development and charging systems implementation. Germany announced a "national platform for electric mobility" to call for one million electric vehicles in Germany by 2020. The Chinese government has called itself to become the world leader in electric cars and buses after three years.

More than 30 countries around the world will be replicating a project conducted in Israel to sell electric vehicle charging like minutes on a cell phone plan, where thousands of car charging spots and hundreds of battery changing stations will be installed. So I do believe there is a massive movement going on here from all sides to adopt electric cars around the world.

How long do you think it will be before electric car companies are able to stand on their own without government tax credits?

There has to be development on the technology as well as on the infrastructure systems. It is certainly something that is going to take several years.

Do you think we’re on the road towards that right now?

Tesla is serving some of the early adopters which will pay more money for the initial product. Nissan is coming to market with a fully electric car this year; GM is doing the same thing. Those will have a lower price point and will be much more broadly adopted cars. There are also a number of hybrid cars operating on the street already.

Do you think the electric car market is going to come from the older car companies or form newer companies?

The car market requires a large amount of capital investment and the established car companies already have the capital in place. So we do believe that the mass shift to electric vehicles will come from the already established companies but some of the advanced thinkers like Nissan, who is making a push into all electric within the next twenty years, may fare better. There are going to be winners and losers and it remains to be seen who will come out on top.

Why in particular would someone invest in Lithium through ETFs?

The lithium supply chain includes a significant high-technology component. It’s not like any other commodity mining industry. You can’t really invest in lithium as a raw material so many of our clients see this as the best indirect way of gaining exposure to the lithium market.

The actual raw cost of the lithium in vehicle batteries is probably less than 3% of end product value, but the step-up in purity of lithium to generate high energy storage capability adds dramatically greater value.

We’ve also seen predictions that strategic alliances and consolidation are likely in the next decade, particularly between electric car manufacturers, battery cell producers, and lithium suppliers. It is hard to capture these points of value add through investment at any single individual company level. Instead, an investment vehicle like the ETF can much more easily capture full vertical and horizontal value-add.

The Lithium ETF trades on the New York Stock Exchange as a fully diversified basket companies and geographies. It is transparent on the underlying, with daily indicative net asset value and instantaneous reflection of market dynamics. 

What might the biggest misconceptions about this ETF be?

We generally run into misconceptions about the trading liquidity of newly-issued ETFs. What most people don’t know is that there is much more liquidity in ETFs as a share class than meets the eye. Many people wait for the trading volume on the screen to reach a certain level before they are willing buy or sell. An investor can decide to create ETF units, which are essentially primary market transactions rather than secondary market ones, and depending on the size of the investment interest, may give a better net price tag on the order than going through the secondary market using online trading platforms or other retail platforms.

The way that works is the authorized participant at a major execution firm like StreetOne or Susquehanna, or a major wirehouse like Citi, places that order and goes into the underlying local markets to buy the relevant amount of each company in the basket. They deliver those shares into a trust, and the trust issues the ETF shares just like any other security.

What other types of ETFs and investment products is Global X involved in?

We’ve seen tremendous growth in our Chinese ETFs, especially China consumer and China financials. We very recently saw a surge in China Materials. Our Brazil Mid Cap and Consumer were recently launched but represent an focused local play of Brazilian based enterprises. Silver Mining has been a fast-growing fund offering access to a niche that was previously unavailable as with most of our ETFs.

Do you have any new ETFs or other investment products on the horizon?

We pride ourselves on providing innovative products that give pure-play exposure. We are almost always a first-mover in bringing timely and relevant products to market. Our Lithium fund is a case in point. Silver Mining ETF was the first of its kind to target the silver mining industry in a pure way. The Brazil Mid Cap and Consumer ETFs were the first to give exposure to the consumer sector in Brazil. Our Chinese ETFs break down that 1.3 billion headcount country into digestable parts. So we’re excited to continue bringing products to market that truly give investors an edge.

Alright, now we have some fun ones for you. What was your first, and what was your worst job? 

My first job was as an auditor in Arthur Andersen, and that was probably also the most boring job I ever had. I think accounting is something everybody involved in finance should learn but for me it’s not the most exciting theme.

What is your favorite restaurant you’ve ever been to?
 My favorite restaurant is Peter Luger’s in Brooklyn.

What do you enjoy doing outside of finance, investing and so on?

I am a big fan of music. My wife is a professional violinist and I really enjoy going to concerts and following her around and being her groupie.

What kind of music do you listen to?

Really anything, I have a pretty varied interest in music.

Where do you get your information about the markets?

Benzinga is certainly a good place; you guys seem to be picking up on a lot of news before others do. The Wall Street Journal is obviously one of the best journalistic periodicals out there, I enjoy and subscribe to it, and I also read The Economist every week.

And this last one is Benzinga’s trademark question: If you could offer Benzinga one piece of advice, what would it be?

Perhaps this is self serving but I would say continue to focus on the ETF market. I think ETFs are a great tool for investors and there is obviously a lot of information that people have to have in regards to ETFs and how they operate. I think interviews such as these and the others you have put together are great. I do expect the demand for ETFs to continue to grow so I would encourage you guys to continue with that.