ETF TV News #63 Jon Maier, CIO, Global X ETFs, discusses China and Thematic ETFs

Dan Barnes Welcome to ETF TV News – your weekly update the latest exchange-traded funds, products and notes. I’m Dan Barnes. Joining me today are Jon Maier, chief investment officer for Global X ETFs  and Deborah Fuhr  of ETF TV. Guys, welcome to the show.

Jon Maier Thanks, Dan. Nice to be here.

Deborah Fuhr Thank you.

Dan Barnes Deborah, can we start with you. Could you give us a few figures on the latest products that have been launched over the previous week?

Deborah Fuhr Last week we had 29 new listings and 29 new cross listings. If we look at who was launching products, there are 23 issuers listing new ETFs, two in the commodity space, one in digital assets on Ethereum. 22 were equity, three were fixed income, two of which were ESG. One was mixed, four were active. And the big theme was actually that 10 provided exposure to China, two were on the Shanghai-Hong Kong Stock Connect (HKEX) and the rest were thematic ETFs. And so ESG and thematics, I think have been with China, the theme for the week.

Dan Barnes Sticking with that China theme, Jon, you launched the China disruption ETF; what is disruptive innovation in China and what is the investment opportunity it represents?

Jon Maier With China you have a country whose government and business leaders are positioning the economy for longterm growth through substantial investments in technology. You have the world’s largest population and the second largest economy. So China really is at the center of many disruptive themes. Some of those themes include health care, education, infrastructure, robotics, FinTech, video games and e-sports. So from a thematic perspective, these developments in China are too large and influential for investors to ignore. You also have this expanding middle-class, and China is also increasingly an intentionally diversifying its economy, led by services and consumption. So you also have this mass urbanization in China that’s going on. So over the last decade, the percentage of the population moving into cities has increased annually by about 3%. At the same time, the household income increased by 10% per year. So our themes generally span geographies when we look at many of the thematic ETFs that we have at Global X. So we’re trying to provide exposure to companies from around the world that are best positioned to benefit from the changing and materialization of structural themes. But China is a little bit different. We believe that owing to its scale, a strictly thematic ETF, based on China’s exposure is very relevant in this particular market.

Deborah Fuhr And how do you see trade tensions impacting the interest in investing in China and some of these themes?

I believe the US Chinese trade war isn’t going away under Joe Biden, but I believe the tactics of the Biden administration will be very different from the former administration. I think there will be more of a consensus, bipartisan approach to China, a consensus with allies bipartisan in the US. But you have to remember that China is undeniable, and even if a US investor chooses to remain isolated and not invest in China, they’re still getting exposure to China. The interconnectivity of all the supply chains, the partnerships with US and European firms, the revenue exposure, it all exists. So once you want to be exposed in a more specific way to gain exposure, I believe so.

Deborah Fuhr How does Global X define thematic ETFs? And how are investors using thematic ETFs and their investment strategies?

Jon Maier Global X defines thematic investing as the process of identifying powerful, disruptive macro level trends and the underlying investments that stand to benefit from the materialization of those trends. By nature, thematic investing is a longterm growth strategy. You should have a five to 10 year investment horizon. Some of that has been accelerated during the pandemic. Thematic investing traditionally has a low correlation to other growth strategies, and it’s relatable concepts; cloud computing, video games and e-sports, financial technology, robotics and artificial intelligence, things we know. Fun things to talk about. And we’re taking the approach that next time is going to be different than the last, so traditional asset management is looking for repeating patterns from the past. Thematic investing is; next time it’s going to be different than the past. So, if you combine thematic investing with a more traditional asset allocation, you’re kind of covering your bases. Now, how do you use it in a portfolio really depends on your risk profile and your investment time horizon. But I believe that thematic, whether it be individual ETFs or some of the portfolios that I’ve created using some of our ETFs, I believe it’s a satellite exposure. A moderate portfolio, perhaps it’s a 10% exposure, and an aggressive portfolio, perhaps a 20% exposure.

Deborah Fuhr Jon, thank you for joining us today.

Jon Maier Thanks for having me. Debbie.

Dan Barnes Deborah, can you give us a bit more detail on some of the products we’ve seen over the previous week?

Deborah Fuhr Last week, we saw themes of ESG, we saw small and mid-cap come to market in the US, we’ve also seen that the NASDAQ 100 as a benchmark is continuing to see new products come to market in Asia. And I think the Shanghai-Hong Kong Connect ETFs is an interesting trend. We haven’t seen ETF Connect happen yet, but that is also rumored to be happening. Year to date we’ve seen 176 new products come to market, which is slightly ahead of this point last year when we had 153 products.

Dan Barnes That’s great, thank you. And just out of interest, have we’ve seen any drop off in fixed income ETFs coming out?

Deborah Fuhr So we saw three fixed income ETFs come to market, two of which were ESG. So I think that’s the theme; ESG has moved from equities to fixed income. And I think we’ll continue to see new ESG ETFs in the fixed income space come to market, especially as benchmark regulations are changing in Europe.

Dan Barnes Makes a lot of sense. Deborah, that has been great. Thank you so much.

Deborah Fuhr Thank you.

Published on March 2, 2021