Presented by Syntax Advisors.
Margareta Hricova: Welcome to ETF TV – your insight into the world of exchange traded funds, issuers and investments. I am Margareta Hricova and joining me today is Bruno Stein, Senior Vice President, Head of Brazil at Global X ETFs, and Deborah Fuhr.
Bruno, Debbie, welcome to the show.
Bruno Stein: Thank you.
Deborah Fuhr: Thank you.
So Global X has been in the news a lot lately in good ways. This week we saw how the acquisition of ETF Securities Australia is in play. We also saw how Global X has been selected by the government in Colombia and the World Bank to launch the first fixed income ETF in Colombia. And of course you joining as the head of Brazil. So today we’re going to focus on you, Bruno, so welcome, and I’d like you to share with us the backstory of how you got to this current role?
Bruno Stein: Well, thank you so much for having me. I’m feeling very lucky, right, joining with this type of news as it is a great way to start. To be honest, the reason that I accepted the role and I’m very, very super excited about it, very happy, is that I think and I believe that the value proposition of Global X, ETFs and model portfolios and etc. and the way that it sees the type of structure of advisory and etc. that the market has, bringing in advisory and good investments to clients in the end is actually the best that we’ve seen by far in the world. It’s a catalyst for the development of the market, for education, for democratic decision, for access, for making products cheaper, for making the allocation on the whole much cheaper, so much more efficient.
So I’ve always been a firm believer in ETFs. I started getting involved in that by running the office of BlackRock in Brazil back in the day, when we met as well, Debbie. And this was when BlackRock was acquiring iShares and the whole entry on the market. And so I spent like five or six years there working on the system and with the exchange and etc.. Then I left for five years and I was working in advisory, so I was on the other side of the trade and now I’m very, very happy to be back. I think this is the best way to foster and develop the market.
Deborah Fuhr: So you talked about local ETFs in Brazil. What do you see as the opportunity for local ETFs?
Bruno Stein: Yeah. I think that ETFs, the size of opportunity of ETFs, it’s all about how much the benefits of the quality of the product will kick in. And I think that because the market in Brazil is a little shallow in terms of number of securities and etc., and because local traders are very aggressive, and also because the futures market in derivatives here, because of B3’s greatest work that they’ve been doing over time, does limit to some extent the love of ETFs.
To be honest, I think that the conventional ETFs have a hard time because, I mean, obviously there’s a couple of indices that have already been consolidated. With those ones, the ETFs are out there already. And to be honest, I think that the creation of new indicies in a proper technical way is not so easy. So for me, the big opportunity in Brazil is actually the cross-listing, it’s bringing the benefits that the market and obviously the ETFs that are available in the global market to the Brazilian investors, to be very honest.
Deborah Fuhr: Exactly, and maybe you can tell us what are ETF BDRs? Why were they created and what’s the potential?
Bruno Stein: BDR is the local version of what in the US it’s called ADR. So it’s just the Brazilian Depositary Receipts. So it’s just an efficient way for you to cross-list the products, the ETFs that you have into Brazil. It’s not even used only for ETFs, but it’s used for all the types of assets as well. But mostly it’s for for ETFs.
And the good thing about the BDR is that the way it was structured at the local exchange, B3 and CDM, they were very, very efficient in creating their product in such a way that it’s available for the entirety of the market in Brazil. So it’s not only for qualified investors fx, it’s for everybody. And the other thing that’s very important is the way that the structure has been defined makes it incredibly cheaper, so we’re talking about three or four basis points on top of everything, which is very, very interesting.
Deborah Fuhr: That’s true. So. Who and how do you think ETF and ETF BDRs are going to be used, and what is the potential for the future in Brazil?
Bruno Stein: Yeah, the great thing about that is that the BDRs and ETFs started in the beginning of last year, middle of last year, and they’ve been already massively adopted. So the good thing is that they’ve been particularly adopted initially by individuals. So there is a big number of individuals that are already allocated to that. There is a big market for retail brokerage in Brazil, and obviously that helps a lot.
And the other thing that I think is happening very well is that the market in Brazil, it’s a $1.5 trillion around that in size. And it has been invested only 1%, internationally. And so the way it will increase that, and this has been a big discussion in Brazil, was how do we create that, because savings have been going up a lot. Those savings have been structuring in mutual funds and hedge funds, family offices and managed accounts, so there’s is a professionally organized market here.
So there’s professional asset managers that take care of that money for the clients, they need just efficient ways to allocate. So ETFs are already almost over $1,000,000,000 in size already, which is pretty large for the time that it has existed. There is over 200 ETFs listed in Brazil already, which is also great, because you need a massive coverage for that.
And to be honest with you, I think that is why this international export increases, BDRs and ETFs are going to be taking, I would say, probably at least 50% share of wallet in that, because this is what has been happening over the last month during which the products were out there already, so I think that’s number one.
The second one, which is obviously where we believe that this is going to really, really grow enormously and exponentially is with the development of the fee-based advisory structure. I mean, we are not there yet. The market is still working with, I would say, different incentives. But the more we go towards that, obviously, the more adoption it’s going to be.
Deborah Fuhr: I totally agree with you. We’ve been watching the growth of the BDRs, and it’s been exciting to see how the number and also the assets, and they disclose the number of investors. So I look forward to watching your success in Brazil.
Thank you for joining us.
Bruno Stein: Thank you, and we are very focused on the non-conventional ETFs. That’s what we want to really make grow here in Brazil. Thank you so much for having me.
Margareta Hricova: Debbie, can you tell us about some of the other news in the ETF industry?
Deborah Fuhr: Sure. So some interesting news came out of the SEC where they’ve issued a consultation and they’re looking at how index providers should be treated. And they’re thinking about potentially classifying S&P MSCI FTSE as investment advisors. Today, they’re considered data publishers. This would be a really big change. So I think that’s actually quite new.
The other thing is we just have completed the analysis for the flows as of the end of May. And I think it’s impressive that we saw just over $80 billion of net new assets globally going into the ETF industry.
We’ve had 36 months of consecutive net inflows and we did see that this month significantly more money was going into equities again and also fixed income, but commodities actually had a small net outflow. So up until this month, we had about three months of money going significantly back into gold and precious metals. We actually are seeing people move away from that, which is interesting because there still is the fear of inflation. We still have the conflict in Ukraine.
If we look at year to date numbers, we see that we’re at about 467 billion of net inflows. We’re down about 100 billion from where we were at this point this last year, but when you think about what’s been happening, it’s not surprising that that’s the situation. We’re still seeing significant new product launches in the active space, in ESG and in thematics. I think those are probably the key highlights I’d want to mention this week.
Margareta Hricova: Thanks so much, Debbie. And thanks again to Bruno for joining us today and to our sponsors, Syntax Advisors, and of course, to all of you for watching.
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