ETF TV News #79 Renato Eid Tucci of Itaú Asset Management Discusses why Demand for ETFs is Growing in Brazil

[00:00:03] Presented by Syntax Advisers,

Deborah Fuhr [00:00:08] Welcome to ETF News – the weekly show that provides updates on new listings and other events that have happened in the global ETF industry. I’m Deborah Fuhr joining me today is Renato Eid Tucci, portfolio manager of Itaú Asset Management in Sao Paulo, Brazil. Welcome, Eid.

Renato Eid Tucci [00:00:23] Thank you, Debbie.

Deborah Fuhr [00:00:26] So last week you listed two ETFs on the exchange called B3, which is the exchange in Brazil. Can you tell us about those products?

Renato Eid Tucci [00:00:35] We have been involved back since 2004, and since then we have been expanding our shelf of products, having a complex set of ETFs regarding broad indicies, sectorials, and also fixed income ETF, covering real rates and nominal rates. And after this whole journey, we started to realize that, we need to address the demand for international exposure, for diversification in the portfolios that we are seeing from the local investors. So we studied other markets and doing a lot of research, we found that a thematic investment was our answer, because it’s a mood sector, straight, and transparent, and it is based on future scenarios.

[00:01:15] So last week we launched two ETFs, as you just said, the MILL 11, which tracks companies that engage with the millennials. It’s a generation that is becoming more wealthy and shaping the way that we consume products and services. So we are talking about companies like NVIDIA, PayPal, Walt Disney, Comcast, Netflix, so it’s a very diversified set of companies. Then we brought the DNAI 11, which tracks companies related with genomic R&D business. Again, it’s a very, very efficient way to express our investment base, so we are looking into the future.

Deborah Fuhr [00:02:01] That’s great. And both of the indices are created by MCSI. Can you tell us about the types of investors that you think will use these products and how they’ll use them?

Renato Eid Tucci [00:02:11] From institutional to retail and also hedge funds being long or short, we are very excited to offer to all types of clients, because it’s an efficient way to diversify the portfolio and get also international exposure in themes that are impacting our day by day and shaping our future. So in the end, we are talking about megatrends and everybody needs to at least get a sense of those megatrends.

Deborah Fuhr [00:02:35] Maybe you can talk a little bit about how the investments have changed in Brazil?

Renato Eid Tucci [00:02:40] Well, once the investment theme became a priority, everybody starts looking at, ‘how can I build a portfolio aligned with my investment objectives?’ So transparency, agility, cost efficiency relies on the ETF, so we are very happy to have a complete set of ETFs, but also we do need to rely on the educational angle of these aspects, because you need to educate the investors to build an efficient portfolio using the ETFs as building blocks.

Deborah Fuhr [00:03:13] What is your outlook for the rest of the year?

Renato Eid Tucci [00:03:16] Well, definitely it’s growth, growth, growth. We’ve experienced a breeze of users of ETF, but it’s still a tiny industry we’re talking about here in the ball park of nine billion dollars. And when you compare with the total industry of financial services in Brazil, this is zero. So we do need to bring the educational angle to the table to provide support in a sustainable way for our investors to use the ETFs as building blocks. So growth, growth, growth definitely.

Deborah Fuhr [00:03:49] That’s great. Thank you for joining us.

Renato Eid Tucci [00:03:51] Thank you for the opportunity. Thank you all.

Deborah Fuhr [00:03:54] So as you heard from the Eid, the ETF industry in Brazil is about nine billion US dollars. One of the new things that has come to market, which allows foreign ETF issuers to bring products to Brazil, is ETF BDR. So the first product for a launch last November. As of the end of May, we now have 66 Brazilian ETF BDRs. If you compare that to the local products, there’s 35 local ETFs. The assets are primarily in the ETFs, but the BDRs now have 460 million. And we can see the number of investors that hold the specific ETFs is a number that continues to rise.

[00:04:34] In other news, we saw that last week we had 58 new listings of products. This is a pretty high week. There were 128 new cross-listings, which is also a pretty high week compared to earlier weeks in the year. When we look at things that were significant last week, I think Dimensional Fund Advisors converting four mutual funds into ETFs is probably the top news. Those mutual funds had 29 billion in assets. They are transparent, active, and they do expect to bring other products to market, so I think we will see further conversions happening. I also think that as Vanguard’s patent goes away in 2022, we’re likely to see asset managers have share classes that are ETFs, allows them to keep mutual funds and offer ETFs at the same time.

[00:05:25] In other news, we’ve seen that the flows through the end of May, active ETFs have taken in 74 billion. All of last year was just over 91 billion, so we’re on a very strong course at five months into the year. Smart beta is also doing well, as is thematic and ESG. And to wrap up, Syntax, which is the sponsor of the show, brought to market their fifth ETF, which is a stratified, US total market, hedged ETF. They have partnered with SWAN Global Investments, and it is using put options to create risk-managed growth strategies. Thank you to our sponsors, Syntax Advisors, thank you to Eid for joining us and thank you for watching. For further episodes, go to ETFTV.NET. Thank you.

Renato Eid Tucci [00:06:20] ETV News does not provide investment advice nor recommend products.

Published on June 22, 2021