J.P. Morgan Asset Management bought a minority stake in Global X Management Company last month. As such, we had the chance to chat with Global X CEO and Co-Founder Bruno del Ama, and Global Head of ETF Solutions for J.P. Morgan Asset Management Robert Deutsch. We explore the background story and the reasoning behind this move.
ETFdb.com (ETFdb): Mr. del Ama, Global X was founded eight years ago and now has over $3 billion in assets under management in 47 ETFs. As the CEO and co-founder of Global X could you tell us some of the main reasons for this success?
Bruno del Ama (B.d.A.): We created Global X to address specific investor needs. Empowering our clients and adding value to their investment process is why we exist. Initially, we were focused on providing simple, cost-effective access to segments of the global capital markets that were not previously accessible through ETFs. Our business has grown over the years to include solutions that now address both core and satellite exposures. We are also unique in the ETF space in that we are less focused on traditional asset classes and more on providing solutions, such as income, alpha, risk management or access.
ETFdb: What is the ETF strategy of Global X?
B.d.A.: Our mission is to listen to and empower customers to invest wisely in unexplored and intelligent solutions.
We’ve built a comprehensive suite of solutions, and our focus at this point is to round out the existing suite, as well as grow our client service and research capabilities. We aim to be the ETF solutions partner of choice for our clients.
ETFdb: Mr. Deutsch, please tell us about yourself and your experience. How did you become the global head of ETF solutions for J.P. Morgan Asset Management?
Robert Deutsch (R.D.): After 10 years at Goldman Sachs, I joined J.P. Morgan Asset Management and have spent 20 years in various leadership roles in the funds business, including national sales manager for mutual fund distribution, global head of liquidity, and now head of ETFs since 2013. I saw an opportunity to bring investors and advisors our award-winning investment strategies in the ETF wrapper, and continue to be enthusiastic about our client work and our ETF products.
ETFdb: What was the motivation and the appeal behind J.P. Morgan’s minority investment in Global X?
R.D.: We believe that investing in Global X will enable us to continue to expand our commitment to the ETF business. This is a strategic investment to acquire a minority stake in Global X, which is a New York-based ETF investment manager. The agreement does not include co-distribution or co-development of products. However, we think the partnership has the potential to develop into a deeper relationship over time.
ETFdb: Will the Global X ETFs be affected by the minority investment J.P. Morgan initiated in Global X?
B.d.A.: No. This is a passive, minority investment and Global X and JPM will continue to run their ETF businesses independently.
ETFdb: Not sure if you are allowed to discuss this, but what is the future direction of the ETF business for Global X? What types of funds are expected to be launched?
B.d.A.: Global X will continue to focus on adding value through its funds, research, and support of our clients’ investment process.
We offer an institutional quality core at a very low cost through our Scientific Beta family. These funds have provided significant excess return relative to market cap-weighted indexes since inception about a year ago, at significantly lower volatility. We will continue to grow this family beyond the current developed-market funds (U.S., Europe, Japan and Asia ex-Japan) to also cover emerging markets.
We will also continue to round out our suite of income, alpha, risk management and access ETF solutions. A particular focus this year will be on our thematic suite. Thematic investing refers to the process of identifying powerful macro-level trends and the underlying investments that stand to benefit from the materialization of those trends. We have identified thematic investing opportunities in areas such as innovative technologies with our Social Media ETF and are expanding to other investment opportunities beyond technology, including demographics, resources and values. The ETF wrapper is ideal to offer these focused exposures to investors.
ETFdb: The final question is more about the overall market. We’ve seen a lot of volatility recently, but everything seems to have cooled off now. However, some investors are not convinced that the worst is behind us. What are your views on equity markets going forward?
R.D.: Equity markets have volatility. While the recent volatility can feel unsettling, it is a normal part of equity markets. Our role is twofold: to help clients understand what is driving the market so they can make informed decisions; and, to offer products that provide a solution, like generating income or saving for retirement. Our equity ETF suite offers equity returns with less volatility so they provide a solution for investors who want less volatility in their returns.
B.d.A.: Fully priced equity markets in the U.S. coupled with slow GDP growth leaves little upside for broad equities over the coming years. Some of the most attractive opportunities will therefore likely be more targeted investments, such as uncovering undervalued industries or emerging themes.
On the value spectrum, we like midstream MLPs given their low valuations and high yields. We have seen a number of value-focused gurus initiate positions in the midstream energy space over the last quarter, such as Berkshire Hathaway, Appaloosa Management, and Jana Partners. We believe that these infrastructure assets are better positioned than most energy-related investments to weather the current oil environment and reward long-term investors.
Internationally, we see opportunities in emerging and frontier markets which are both a value and growth play. Emerging markets are at the low end of their valuation range historically.
Beyond tactical opportunities, we work with our clients to build well-diversified long-term portfolio allocations. As part of the portfolio construction, we see value in uncorrelated alternative investments and risk management tools that will provide diversification or protection in these volatile environments, such as the one we experienced at the beginning of the year.
The Bottom Line
The recent minority investment by J.P. Morgan will not affect ETFs issued by Global X. According to Mr. Deutsch, J.P. Morgan’s move was a strategic investment that may help build a deeper business relationship with Global X. This 8-year old issuer is exploring plans in thematic investment opportunities, which may further increase their lineup of ETFs. As Mr. del Ama mentioned, Global X ETFs are unique due to their strategy of providing solutions for clients through non-traditional asset classes with a focus on factors such as income, alpha, risk management or access.