Luis Berruga, CEO, Global X ETFs discusses the drivers for demand for Thematic ETFs and his outlook for 2022

Presented by Syntax Advisors.

Margareta Hricova: Welcome to ETF TV – your insight into the world of exchange traded funds, insurers and investments. I am Margareta Hricova and joining me today is Luis Berruga, Chief Executive Officer of Global X ETF and Deborah Fuhr of ETFGI.

Luis Berruga: Thank you for having me.

Deborah Fuhr: Thank you.

Margareta Hricova: So Luis, can you provide a brief background on Global X and your role within the company?

Luis Berruga: Global X is an ETFs provider, based out of New York. We were founded in 2008 and we launched our very first ETF in 2009. Today we have 44 billion dollars in AUM. We are widely considered the leaders in thematic investing and we’ve been able to expand internationally in other regions such as Europe, Asia and Latin America. My role is the chief executive officer of the company. I took over this role back in 2018, when we were acquired by the Mirae Asset Financial Group.

Deborah Fuhr: Would you note the popularity of thematic ETFs as one of the highlights of 2021?

Luis Berruga: Absolutely. If you look at some of the data in the US – but quite frankly, this is also true in other regions of the world – assets in thematic ETFs back in 2019 where at roughly 30 billion dollars in AUM, whereas right now we are sitting at around 130 billion.

Investors are realizing the benefits of thematic investing. On one hand, you have access to high growth, disruptive themes in the economy, such as cloud computing, telemedicine and digital health, video games and e-sports, so we are very relevant in the context of COVID-19. But quite frankly, from a portfolio management standpoint, these themes in many cases really contribute to diversify the risk profile of a client’s portfolio, given that many of these things tend to have very concentrated positions that offer low correlation with the broader portfolio.

Global X is a good example as right now we have 33 thematic ETFs in the US with roughly 20 billion dollars in AUM. Now, we’ve been doing this since pretty much back in 2010, when we launched our very first thematic ETF, which is our Global X Lithium & Battery Tech ETF (LIT) that now has around five billion dollars in AUM.

Deborah Fuhr: When you look at 2021, which themes were the most popular?

Luis Berruga: We saw a significant amount of interest in our FinTech ETF (FINX). More specifically, we launched our Global X Blockchain ETF (BKCH) in July of 2021. And basically, this ETF aims to provide access to companies that are very well positioned to materialize the success of a broad adoption of blockchain and digital assets in general.

We also saw a significant amount of interest in our sustainable themes. We are seeing a very significant shift in the economy towards clean energy and sustainable living. So we developed a number of ETFs to provide access to some of these companies that are very well positioned to benefit from the materialization of these trends. Hydrogen, clean water, solar and wind energy, and we saw a significant amount of interest by the market in all of these themes in digital assets and sustainability.

Deborah Fuhr: And do you find that retail investors are the primary users of thematic ETFs in the US?

Luis Berruga: Thematic investing is becoming popular across all segments of the market. We are seeing institutional clients using thematic ETFs, financial advisors, and retail clients. It is true that, I think in the last couple of years, as a direct consequence of COVID-19, we have seen a lot of interest coming from the self-directed retail segment of the market for a number of reasons. One is because there is more income, because many retail investors are not spending as much money as they were doing before, because they are kind of locked down and at home, but quite frankly, in many cases they have been receiving direct payments from the government.

So if you combine more money available to invest with the easier access; right now, you have got your FinTech and global advisor platforms offering very easy access to the markets. I think that’s definitely contributed to having more and more self-directed retail clients participate in the market and therefore actively buying ETFs.

Margareta Hricova: Which factors drove you to expand the Global X presence and launch products in Europe?

Luis Berruga: Ever since we were acquired by Mirae Asset in 2018, we’ve been working very hard to build a very robust infrastructure to make Global X, not just a leading ETF issuer in the US, but around the world. And a key element of that strategy has been Europe. In December of 2020, we launched our very first two, thematic, UCITS ETFs and more recently, in November and December of 2021, we launched 15 more thematic ETFs, so now we have a full range of 17 UCITS ETFs, and we have one of the most comprehensive lists of thematic ETFs in the European market.

Deborah Fuhr: And you’ve also decided to expand to Hong Kong and Japan. We know there’s a number of different countries that have ETFs out in Asia. Why did you choose those two countries?

Luis Berruga: We thought Hong Kong was a phenomenal location for us to attack the Chinese market and the Southeast Asia markets. So right now, in that business, we have around 2.5 billion dollars in assets and 32 ETFs listed on the Hong Kong Stock Exchange.

In Japan, we were able to sign a joint venture with Daiwa Securities, the second largest financial institution in Japan. We partnered with the idea of bringing thematic ETFs to the Japanese market under the Global X brand. That business is still very, very new, but we already have around 10 ETFs listed on the Tokyo Stock Exchange, with around 500 million dollars in AUM.

Deborah Fuhr: How do you find Hong Kong ad Japan compared to the US and Europe?

Luis Berruga: In Europe and the US, typically, what we see for our 24-hour thematic strategies is; long term investors buy and truly believe that many of the benefits of these themes will materialize over the next two or three decades. In Japan and in Hong Kong, we are seeing a little more of a tactical front than what we have seen in the US, historically.

Margareta Hricova: And what is your 2022 outlook?

Luis Berruga: So we do think many corporations all over the world are rethinking how they can optimize their processes around supply chain to try to mitigate some of the challenges that they have faced over the last couple of years. We do think robotics and AI can be a very effective way to improve some of those processes, so we do expect more investment going into those to main themes; robotics and artificial intelligence.

Another theme is cyber security. This is one of the things in which I personally have a high degree of conviction, because I just don’t see a world in which there are less cybersecurity threats than we have today. We are seeing, very clearly, a huge transition from the physical world to the digital world. That means more data, more content, more speed and more devices connected to the internet.

And finally, electric vehicles; we have seen a large increase in interest, but we do believe 2022 could be the inflation point for the industry for a number of reasons. Prices continue to go down, particularly when you factor in subsidies and maintenance cost. The infrastructure of a charging network is definitely improving. We are seeing that in the US and Europe, but also in key markets in Asia. And finally, quite frankly, the regulatory tailwinds because governments around the world are heavily incentivizing consumers to favor electric vehicles. Because overall we do think electric vehicles are very well-positioned to capture an outsized growth in the marketplace over the coming year.

Deborah Fuhr: Those are interesting insights. Do you see any regional differences in your outlook?

Luis Berruga: I would consider robotics, artificial intelligence being particularly meaningful in countries like Japan and China. An aging population is definitely an issue in Japan. It is very difficult for Japanese companies to find workers that want to perform certain tasks. They are resorting to robotics, artificial intelligence to bridge that gap. And in the last two or three decades, the cost of labor in China has increased dramatically. So they’re really faced with a challenge of having to optimize their cost of production, and they are definitely using and investing in robotics and artificial intelligence to keep costs low.

Deborah Fuhr: That’s great. Thank you so much for joining us today.

Luis Berruga: Thank you for having me.

Margareta Hricova: Thank you to our sponsors, Syntax Advisors, to Luis, and to all of you for watching. To watch prior episodes and to see news from the ETF industry, visit us at ETFTV.NET. Thank you.

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Published on January 19, 2022