Luis Berruga on ETF Investments

most interesting E t F s UH that are out there. Sure, most of the industry are passive giant UH e t f s from the likes of Vanguard and Black Rock and State Street, but the space that those shops don't play in are coming up with ideas for themes that allow investors to focus on a very specific idea within the world of investor thing and we discuss everything from their founder run company E t F. I love the stock symbol BOSS to lithium two covered coal writing within

NASDAK and SNP wind Power, just on and on. They have uranium, just really fascinating ideas that allow investors to express their investment themes in a very specific, fairly low cost, professionally managed e t F. I found the conversation fascinating and I think you will also if you're at all interested in E t F s and thematic investing in looking at the world through a somewhat different perspective than what we assume is standard from the giant E t

F companies. I think you'll find this to be really an intriguing conversation. With no further ado. My interview of global X CEO Louise Baruga. Thank you for having me Berry. So let's talk a little bit about your background. Before you joined Global Acts, you were an investment banker at Jefferies.

You advised on M and A and investures and capital raises, and before that, Morgan Stanley doing technology and operations planning for the Wealth and Asset Management Group discussed that background and how does that lead up to a career in E t S? You know, great questions. So, yeah, I had a career in investment banking with Jeffries and it was a really good professional experience because I did have the opportunity to work in M and A, equity and dead financing. I had a chance to be part of

somebody interesting transactions in the banking space. I did in two thousand thirteen banking transaction that the market had seen since the Financial crisis. It was at two point four billion dollar deal, and that was a very interesting experience because it really allowed me Berry to understand this like cology behind MNE, which it came in very, very handy later on in the context of of Global lex Um.

From the standpoint of Morgan Stanley was the earlier part of my career and it's a great company, a great group of people. I I would be forever thankful to to the guys that Morgan Stanley because they gave me the first opportunity to work to get a full time job in the U S when I first moved from from Spain, and I learned alot because I spent a lot of time with financial advisors, which as you know, is a key segment of our client base today. So

phenomenal learning experience with both Jefferis and Morgan Stanley. So you move here from Spain. What is the financial advice world like in Europe? What's it like in Spain? It has to be such a different set of the retirement planning is different, the safety and that that it's different. What's

the finance industry like in Spain? It's fundamentally different. First of all, I think the amount of investors and participate in the financial markets is much smaller than it is in the US, and I think that the financial advisors are used, but not as widely used as they are

in the US. And definitely the retail market participation is significantly lower than you can see in the in the U S. But I think it's definitely changing very because you know, you say, more and more fintech platforms and robo advisors that in a way are making access in financial markets easier for more and more investors in Spain. And also I think there are a few dynamics specifically in Spain where people are really concerned about the sustainability

of the traditional pension plans. People in Spain when I was growing up in the eighties and nineties, they expect to just retire and and have the government give them like a pay check every month. And I think people are realizing that it's becoming more and more challenging over time. So that's incentivizing more and more investors in Spain to participate in the financial markets, which I think is really positive. So you joined Global Accent What led you to them?

From Jefferies great questions? So I guess a couple of things up until that point, Berry, I was I had worked only for really big companies Morgan Instantly and Jeffrey, so I was definitely looking for something more entrepreneurial. One of my biggest frustrations with working at a big company is that they tend to be very bureaucratic. It takes

a lot to get things done. So I was definitely looking for something more entrepreneurial where I could see more of an impact of my contributions in the actual output of of the business. So I was definitely one of the key drivers. And then the other driver Berry was that I I saw the potential of the ETF industry. Quite frankly, I was already an investor in e t f s at that point in time. I remember telling myself, why would anyone invest in mutual funds when you can

buy an e t F instead. You have deliquently did the tax efficiency, the transparency, and I did the math, and I think at that point in time, roughly speaking, assets in it t s were roughly just ten T of assets in mutual funds, and I was pretty convinced that number was increased significantly. So I saw the opportunity and that when global X came along and where are we know what percentage of the assets are in e

t F relative to mutual funds right now? I think around thirty three or thirty four percent, so tripled since you joined global and I think that trend, quite frankly berry is accelerating, and my view is that it's going to continue to to increase even faster. I think there are many catalysts, lots of mutual funds to e t

s that we're seeing in the market. I think for the one K plans are starting to use it t F more more broadly, and then some of the new changes around you know how you can do actively manage the strategies in the context of an ETF. I think that's going to accelerate the adoption of a d F significantly. Our mutual friend Dave Nodded has joked that if mutual funds came out today, they would never be approved by the SEC. What do you mean you share capital gains

with people who haven't sold. That's a terrible idea, and clearly E t F s UH cleaned that up. Um. So, not only has the E t F industry been gaining momentum, but global X has really grown. You're now just about forty billion dollars in a very challenging year. Tell us what led to this growth? What what's made you guys as successful as you've become from a much smaller base a decade ago. Yeah, I mean, it's been a beautiful ride,

to be honest. I joined Global Eggs in two thousand and fourteen and we have, if I remember correctly, approximately one and a half billion dollars in au M. I was employee number ten and for all intents and purposes, Bury we were to startup. I mean when I joined, I didn't have a computer for ten days, so you had a limit of that link. So fast forward to

where we are today. We have over forty billion dollars in assets under management, we have two hundred employees, and we have a local presence in all of the major markets around the world. And and to your point, I think there are two main drivers of that growth. One is our leadership in thematic investing is an area that we've been very focused on. And the second aspect of our strategy that has been very very helpful is our

global expression. We do believe the growth of the ATF industry is not just an U s phenomenon is a global phenomenon, and we want to be able to service our kinds in all regions of the world. So let's talk about the thematic side of it. When it comes to passive, there are obviously three giants. It's Vanguard, Black Rock and State Street, and then there's everybody else. But the thematic side seems to be wide open. Is that

the thinking, Hey, here's here's some open fields. Let's let's see what we can do here and leave the behemoth to charge four bibs on a SMP five or a total market funds. Yeah. I mean that's a great point. And I give you a little bit of the history

of global legs because I think it's very relevant. Think about the two founders of global Lex, Bruno and Jose They set up global Lex in two thousand eight, and from my tandpoint, you have to be a little bit crazy to start in the sure business, and they didn't have much capital and enter the e F industry to compete with the large, the largest ASSEM managers in the world.

But I think they did something very well. From the very beginning, they realized that the most effective way to compete was through innovation and That's why very early on they focused on on thematic investing and they launched which I believe is the first thematic e t F in the U S which was our Global Lex Lithium and battery technology exactly exactly, And and that's a big fun that's a three or four billion dollars something like that. Yeah,

I mean twelve years later. It wasn't like that at the beginning, but twelve years later it's now going to be yet roughly speaking, around four billion dollars in assets and a very successful strategy. So what I told the friend I was interviewing you, He says, why does the world really need another e t F provider? And my answer was, Hey, not everybody wants to buy a passive index around the satellite of a core portfolio, or even just hey I have an idea. I think this is

going to change the world. Is that the clients you're aiming for? Is that who the global X investor is? Yeah, I mean gad Franco. We have institutional investor, we have financial advancetors, we have retail clients. But I think the main reason behind the success and the growth of amatic investing is I think it's pretty straightforward, and the world very is changing at the fastest space that we have

seen at any point in history. And what I see from more investors is that they don't think the traditional and traditional investment approach of looking at historical data to predict future returns is no longer enough. Many financial advisors and clients are telling us that an investment approach that looks into the future is needed, and that's where thematic investing comes into play. And I always use the exact same example. How you invest in in Google or in

Facebook in two thousand three. You only invest in those companies if you are taking an investment approach that is looking into the future, because those business models, those products, those services simply didn't exist. And I think for our standpoint, thematic investing is the approach that allows investors to do just that makes sense to me. Let's talk about some of your more popular e t f s. But before we drill down on to some of my favorites, I

have to ask where these ideas come from. Some of these are really unusual, different, innovative. How do you guys come up with the theme for a new ETF? Great question, and I mean I guess it comes down to our proud development and our research team. Right now, we have a team very of over thirty research analysts located all over the world, and basically all they do is looking at these trends, talking to industry consultants, industry participants, and CEOs to really try to get a sense of where

like the most relevant emerging trends are. And once we have at any point in time, we can have anywhere between twenty two thirty things that we're looking at. And then in terms of how we decide what things we eventually bring to market, we apply like a very simple but it's still robust framework that we have developed over the last fourteen years. We look at three things. We look at conviction, we look at investability, and we look at a time horizon. And let me explain that a

little bit. Conviction, so we look at, you know, whether or not a specific theme is something that we have a high degree of conviction that will be a trend that will definitely have an impact in the economy over the next two or three decades. We look at decades, two or three decades, so we're not interesting interested in any that is kind of like popular for a couple of years, and I'll get to that in just one second. We're literally looking for the structural shifts in the economy.

Think of robotics and artificial intelligence, cyber security, cloud competing. So that's the first step that we as a group try to assess our level of conviction about a given theme. Then the second step, which is very important, is investability. We need at least twenty five to thirty companies to be able to launch an e t F, so that's a minimum thirty count from a diversification standpoint, I think that's that's the recommended ex sense minimum amount of companies.

And then finally we look at time horizon to your earlier point. Very we are not interested in trends that will be popular for a couple of of years. We are literally looking at disruptive and structural shifts in the economy that in some cases can take decades to play out. That's how we think about thematic investing. So one of my pet theories is that half the battle for e t S attracting assets is the ticker. If you have

a catchy ticker, you halfway there. Am I out in a by myself with that, or do you think there's any truth to that, I mean, I would say I think that's I partially agree with that. I think obviously the ticket is very is very important particlely for the self detected retail client base. Catchy ticker can definitely increase the chances of a product to be successful. But I couldn't discount how much work goes into the proud development

part of it has to be a good product. It has to be properly designed, and there are lots of decisions that go into creating an e t F berry. You have to define the theme that you have to define the different pockets within the theme. Look at liquidity market cup wedding virtues, equal weight rebalancing frequencies. So the product has to be very well designed to be successful. But yes, if you, on top of up have an attractive ticker, it can definitely increase the chances of being successful.

So let me talk about some of my favorites of your e t F s we already mentioned the lithium will come back to that when we talk about some other related a t F. I love this founder run companies. What's the ticker for that bus? How great is that boss for an e t F of companies? That are still run by the founders. So the first question is why does that matter? Why does founder run companies make

a difference. I mean, our analysis was that the companies that are run by their founders tend to make long term investment decisions in the business and versus having the pressure of having to report quarterly earnings and like the earnings targets that research analysts and you know tend to assign to every single company. So we do think these companies over the long run could perform better than the

broader market. And also it's an interesting play in the sense that founder rank companies tend to take a more cautious approach to business than maybe other type of of companies. That was the main value proposition behind the founder run companies. And to your point that it was a very interesting tacker. We spend our problem and teams spent literally weeks to come up with with that one. Well, it's brilliant. Let's do another one. The interest rate hedge at F stock

symbol rate. That's another a great ticker. How do you hedge interest rate risk in an e t F. Well, in this part of our case, we're doing that through like TSE the Revatives is a fairly complex product. We tried for the most part, we tried to follow like a passively managed approach to all of ours. In this part of our case, it was very difficult to provide

that structure through like a passively managed strategy. So we take a more tactical and active managed approach to that particular product, and we were very lucky because we were able to secure this ticker red, which is definitely it's a very it's a very young product. We just launched a few months ago, but we have a high degree of confidence that it will be very successful over the aron run. The timing is pretty good. You you have an interest rate hedge as rates start to spike up.

You literally launched within a month of the first FED increase, so that's pretty timely. Let's talk about cybersecurity. Ticker bug Bug, tell us what's in the cybersecurity? I mean, cyber security is one of our highest conviction things right now for

a number of of reasons. Very First of all, there are fourteen point four billion devices connected to the Internet right now, which is great, but you know the day you know, the more devices that you have connected to the Internet, the more points of vulnerability there are, so the need for cybersecurity is very obviously we have seen that also in the context of the conflict between Russia and Ukraine, were like the narrative over the first few

weeks was all around cybersecurity and and those types of things, And the analysis that we've been doing in our research team, we expect global cybersecurity is spending over the next five years to be around one point five trillion dollars. So we have a high degree of conviction in that theme. And even in the context of a very volatal environment that we have seen over the last four quarters, we

continue to see consistent influence coming into that DF. And let's talk about what I think is your biggest fund with about six billion dollars is the NASTAC one hundred covered Quality t F. You also have an SMP fire covered call. Why covered calls? What what does that create within the t F. We think it's a great solution for for clients that are looking for two things, either income or a risk management tool to play the volatile

environment that we have seen in the markets. Our flagship product q I l leviaches and as that one one covered called ETF with six point six billion dollars in a u M it's right now roughly offering a dividend yield of around twelve percent, So you are an income oriented investor. Particularly vary in the context of right now. Things have changed recently, but we have been for an extended period of time going through like a historically low

interest rate environment. So many of our clients were struggling to find alternative sources income for their p all us, and this product paying over the twelve dividen dive then yield and monthly distributions was very, very attractive for many of our our clients. So so how do you manage the risk that, hey, if the nastack starts going higher and from the lows in October Town, now we're up i don't know, ten percent almost in the in the nastac.

How do you manage having the stock called away from you? When you're writing dividends, you're giving someone the right to purchase that stock at a higher price if you run up to that price. How do you hedge that exposure to make sure the underlying doesn't get called away? There's a good question what happens there is the volatility that

you see in the market That's why. That's another way in which we are seeing clients using this covered college strategies is almost as a risk management tool because in this environment of high levels of volatility, the option premium that you get on that when you write the option goes app so effectively when there is more volatility, you get like a higher dividen yield of them one. So that's why more and more clients in the contract the last for course, have been using this strategy as a

way to monetize that volatility. So that one is your flagship at six billion dollars, you have some et fs with you know a handful of millions of dollars. At what point are these break even? What is the self funding level for any t F? I've heard some people say million, fifty million, a hundred million. How much assets

doesn't e t F have to attract before your confident? Hey, this is at least a break even and it can change quite a bit based on the exposure of the of the a t F, particularly the geographic exposure in our case. Roughly speaking, they break even point is anywhere between five fifty to a hundred million dollars in a u M, which is really a pretty big number. It shows you how challenging it is for some of the smaller e t F companies that you know they have ten million dollars in in an e t F, you're

suggesting that's the money loser for that company. I mean it always. It depends on the economies of the scale of the business that you are you are considering. But when you factor in you know, legal costs, compliance, portfolio management, trading, there is a lot that goes into launching and and e t F. So yeah, I mean, I do think of fifties around the sweet spot in terms of break even. So let's talk about some more of these e t fs. But I really want to start by asking how much

horsepower goes into running these funds. You know you have a pre sizeable workforce. Is this mostly data and operations people or research or trading? What's the underlying human resources that you have to pour into launching a new ETF? Great question. It's a combination of both, and I'd like to think about it in two different ways. One is, when the the a t F is already in the market and it's already trading on exchange, then you need

a fer amount of resources. You know portfolio management, trading resources, profile administration, compliance, risk management, and products management people just to make sure that the product is behaving exactly how it's supposed to behave and right now we have close to a hundred at F. Obviously, it takes a for amount of resources, and then before you actually launch the product to market, that's when the work is more heavy on the proud development and research part of the process,

and particularly around thematic investing. Verry, I wouldn't underestimate the amount of resources that you need to bring a thematic e t F to market. Right now, we have over three research analysts located all over the world because, like I mentioned earlier, the wall is changing at the fastest space that we have ever seence, so there are trends coming up constantly. But also in mind that is innovation

happening everywhere. So in many cases, some of these very disruptive companies are not in the US, and they may be in China, they maybe in Vietnam, they maybe in South Korea, they may be in Japan. So it's important that you have a very robust team of research analyst that covered all of these companies well Asia, nothing in

Europe where you're from. Great question. Great question. I mean, there is definitely also interesting companies in the in the European market, but it is too a lot of the new trends that we are seeing at a commune from some of the largest markets in Asia interesting. When global x creates an e t F, are you also creating the underlying index? Are you working with outside index providers? Tell us a little bit about what that process is like. Again,

it depends a little bit on the strategy. So if it's, for example, a strategy tracking ANASTA index or an SMP or an MSCI, typically you leverage an index that is already available through the index problem, I mean, you make a couple of little tweaks to make it more relevant to the context of the exposure that you are trying

to to achieve. But in thematic investing and for the most part of the intellectual property that goes into developing the index we do internally with our own research and pro development team because the reality, you know, I'll tell you like a quick anecdote, in two thousand and ten, when we wanted to launch the first it t F, the Global Lithium and Battery Tech ITTF, we actually went through the process of calling all of the index providers to see if they wanted to work with us on

the development of this idea, and pretty much they laughed at us, like, what are you guys trying to do? Like a lithiumf what is that? So because of that, we actually had to pretty much do a lot of that heavy lifting in the house, which back in the day we saw us a challenge, but where frankly was the best thing that ever happened to us because it forced us to develop our own product and research ap aabilities that right now we're still benefiting from fourteen years later.

All Right, So you mentioned lithium and battery tech, which is about four billion dollars symbol l I T. Let's talk about two others that are sort of sustainable investing related again, back to the ticker clean water aqua a q w A obviously coming from Spain, Agua is that I think a lot of Americans might not have thought

that up on themselves. Um, how is the clean water e t F doing and what sort of companies do you hold in in a clean water I think it's it's one of our newer things and what we're seeing, particularly with a clean water or think about a clean tech, renewable energy producers. There's a significant shift towards a more sustainable world and I think many of these things are benefiting from that transition. And clean water is definitely is definitely And we've seen massive war supply issues in the

United States, not just having available water. California is going through a drought, a lot of the West is. But when you look at what took place in Flint, Michigan, and a whole bunch of other cities whose water infrastructure has fallen apart, there has to be an immense demand

for clean water going forward. We have seen already some policy coming from the White House in the last you know quarter where we do think many of these companies are basically dedicated to, like, you know, a process of water in more effective ways are definitely gonna be benefiting from this trend. And uh, how about wind energy or windy w n D Y Uh what sort of companies that do you hold in that sort of etes all companies that are basically involved in the production of the

in the production of of wind energy. Are there that many public companies in that space? I know, geed stuff like I'd be hard pressed the named forty companies in that space. I mean, obviously it's it goes back to the process that mentioned before of like looking at conviction, looking at you know, investability and type RI and that

second component is extremely important. The thing is, I guess a good reminder there, Berry is that when we think about our thematic its like this, some of the names that we just we just discussed, like clean water or wind energy, our thematic dfs are global in nature. So we're not just looking at the U S companies. We're looking at the entire worlds. From that standpoint, there are actually many more companies that you may think and initially so so I know, there are some British companies and

wind energy, there are some Dutch and Norwegian companies. So this is a global it t F and it's filled with anybody in that space that that you think is in that correct you were talking about, you know before. For example, there's a good Spanish company called Acton's part of that of that index, and you know you're speaking this energy transition component Berry is becoming more and more popular in many of the commerce sations that we are

having more recently. One of the ets that we're having lots of conversations about is our uranium et F, which is also one of our largest symbol. You are a and it's become extremely a top of mind for many of our clients, not just in the US, but quite frankly all over the world because of the energy crisis that we are seeing in Europe as a direct result

of the conflict between Ukraine and Rush. I think more and more investors and more and more market participants are realizing that there is a very significant need for greater energy diversification, and nuclear energy is becoming, you know, widely considered as a very emerging as a very viable solution in that space because of of the lower cast, the reliability, and quite frankly, because it's it's clean from a greenhouse

emissions and stand on. And that's why there's no surprise that I like right now over the fifty nuclear plans being built in nineteen different countries. Really, I know, France gets more than half of their electrical power from nukes, and the US used to be ten or fifteen percent, but a lot of those have been mothballed. Are We're going to see a surge of new nuclear powered electrical generation over the next decade. In my opinion, yes, absolutely so.

Many of these and nuclear plants that are being built right now are mostly in the emerging markets. You can think of South Korea, India, China, but we are seeing that shift already in other markets, specifically Europe that was kind of like shifting away from nuclear energy for many years. I think right now they are rethinking that approach to their energy mix again, as I did have consequence of some of the challenges that they are facing with a

conflict between Russia and Ukraine. Right when your biggest supplier of natural gas suddenly becomes hostile, you start looking at other energy sources again. When I think of nuclear power, I think of traditional fission plants, but I know there's been three big innovations recently. One has been the micro plants. Instead of having a giant plant, you can have a small plant. The second are things like thorium powered plants, and then there are the fusion plants. What sort of

innovation are we seeing in nuclear power production? You just don't read about it or hear about it in very many places. I think the number one that comes up, quite frankly is safety. The technology around making these nuclear plants a lot safer than maybe was the case in the past, because I think, like a nuclear energy and uranium has historically had a bad reputation because some of the accidents. You've had accidents, you have storage issues, you

have waste disposal issues. How do you deal with them today? But based on you know, the conversation that we're having with research analyze and practitioners in this space, the technology around the development of nuclear energy is a lot safer than it's ever been. So that's why we expect more and more kind increase adopted nuclear energy. Yes, have primary

source of energy. I recall post Fukushima there was a company that I think lux Capital was the VC behind it, that came up with a way to take nuclear waste and embedded in certain types of glass or plastic rods and you just didn't have the same radioactivity. So that was the way they dealt with it. Anyway, it's fascinating that that is such a under the radar, fast growing space that I think the average investor is wholly unaware of. I mean, the data is that I think we've seen

that fund. I mean speaking from memory very but I think it's roughly six million dollar assets in that DF. It on quite fascinating. So let's talk a little bit about some of the opportunistic thematic ETFs we've seen in the recent h environment. We've seen inflation hedges, inverse fund, interest rate funds. What are the challenges for being opportunistic when, as you said, you're looking out a decade or two

on on some of these ideas. I mean, one of the challenges I guess points of clarification when we talk around thematic investing is that, in a way, very thematic has almost become a catch all category. So when market participants or investors don't know exactly how to categorize and E t F, they automatically refer to id F as um as a theematic idea. But we do think and theematic investing is a very robust investment approach that consists

on two very simple but powerful steps. One is, we look at very powerful, disruptive macro level trends that we think will shave the economy over the coming decades. And so we look at the companies that has tend to benefit from the materialization of those trends. And that's a very very clear definition. So many of these ideas like inflation hege or interest rate hedge, they couldn't really fall within our definition of thematic investing because they are cyclical

in nature. They will be like a reversal to them. And and and I think it's very very important that we think of thematic investing in as a as a forward looking investment approach. And I think there is some confusion in the marketplace from that standpoint. By going back to your point about like kind of being opportunistic and I'm being able to react to market conditions. Typically you can expect for any DF issue to take anywhere between six to nine months to launch. Annuity have to market six

to nine months. Wow, that's actually faster than I thought. Go back a couple of years. You want to create a mutual fund, you used to take a year or two to get everything had to be approved. And now as long as you have everything lined up, the process

seems to be pretty streamlined. Yeah, I think so. I mean, I think if you start a form at scrutch and you have to setubt your own trust and look for a new new independent board and applied to the SEC for the proper approvals, then it may take a little bit longer than that. But for a business that is already up and round, where you already have your trust, you already have your registered investoral advice, or you have your board, is a much more extremeline process that maybe

it was a few years ago. You know, a lot of the thematics we've seen they run seventy even hundred basis points global X averages between fifty and sixty. How have you managed to keep your fees competitive versus some of the other thematic e t F funds. I think it's all relative. I don't think fees are high or

low in absolute terms, is rightly right. It's it's a function of the complexity of the product and the value that you get from the e d F sponsor in our case for example, like think about SPF for the three or four basis points for free practice exactly because in that particular case, you know, developing an index like that is pretty straightforward. You can pull some data from your Bloomberg terminal and then you are pretty much good

to go. But when you think of thematic it T s, for example, it's a much more complicated process because you have to make lots of decisions. You know, developing a thematic ITTs is a pretty complex process. You have to first identify the theme. Then you have to identify the different categories within that theme and make important decisions around liquidity market cup wearing versus equal weight liquidity filters. And remember,

for thematic investing, our approach is global. So we look at any company in the world that could have exposure to cybersecurity, for example for cloud computing, and that requires a fair amount of manpower to bring that product to market. And on top of our we use our research, our model portfolio business to really explain to our clients how to invest in those it so I think the value that we provide to our clients is very significant. So

you mentioned market cap waiting versus et F waiting. Tell us about the thought process. How do you decide one way or another? What is global access preference? In most cases we follow what we call it modified market cap wearing approach, particularly around thematic investing. We do think that's the optimal approach for for a couple of reasons. So first and from our standpoint, you want to for this theematics. These are younger industries where you still don't really know

who the winners and losers will be right. So you want to have as much exposure to the theme as a whole rioland trying to pick the winners or or the losers. And we do think like a modified market cap approach is the most relevant. When you say modified, so it's not straight market cap. There are probably ceilings and floors exactly. So basically bigger companies are a bigger part of the index, but we have caps of like eight percent, two percent or two alve percent of the

company based on the index. And the classical example here to bury is, for example, our e commerce ETF. We fall follow like a market approach, but you don't want to be in a situation in which Amazon becomes forty five percent of the index. That's why we have the weight of each company anyway between eight percent to twelve percent as a way to mitigate that idiosyncratic risk. What are your thoughts on some of the inverse funds that are out there. Last year we saw the introduction of

the inverse arc. This year we saw the inverse Streamer. There's some really wacky e t F ideas. Do you guys ever consider that or you just look at those as you know, novelties not really, that's not part of our our business very I think like the large majority of our clients are long term oriented in investors, and

that's what we typically try to focus on. I mean, I do think there is a market for leverage and inverse a t s out there, but from my way standpoint, we try to stay away from those types of strategies because we don't think they incentivize the right type of

investor behavior. It's it's more speculative than it is investment. Yeah, I think it's like obviously that some sophisticated institutional clients that they really know what they are doing and may they use those et f s as very useful trading tools. But I think anything that can potentially have can be accessible by retail clients. I think we have a responsibility as an industry to be very careful about that makes a lot of sense. So let's talk about managing through volatility.

Was a huge year. We were upteen percent and I think it was like up sixty eight percent from the pandemic lows one, we're up twenty eight percent. Then this year where everything falls out of bed market down, bonds down, how do you manage through volatility like we've seen in two you know, great question. I mean, without a doubt,

has been a very challenging market environment. We've had geopolitical issues, the highest level of inflation that we have seen in the US in forty years, and still supply chain issues due to to COVID nineteen. So it's been a very challenging year. But you know, our business continues to do well.

I mean, we've seen this year roughly between three and four billion dollars in a new assets, and we're having very good conversations with clients that I think at corerent valuation levels, they remain very interesting in the market and they see some some opportunities. But to be done with you bury, from our standpoint, we don't really make any material changes in how we think about the business because of of the market environment. You know, we we had

a really good twenty twenty. We had a really good twenty twenty one in terms of influence. This year has not been as good in terms of influence. But from my standpoint, i'd been a phenomenal year because we continue to execute on our strategy. We continue to large interesting powers, we continue to take out of our clients, and I think over the long run. That's what really matters. If you can execute and attract clients and keep clients in a year like this, you're doing great. It's hard to

argue with this sort of baptism of fire. I think I think a lot of people were genuinely surprised by two wait markets go down. I thought they only went up. It's been eye opening for a lot of the younger traders, younger investors who I know you go back to since two thousand and nine, they've only seen up markets a

hundred percent. And I think, and I actually do have that very conversation with the junior members of our team, because if you're just starting the industry four or five years ago, you think the markets only go up, right, And I think it's is when you've gone through their financial crisis in two thousand eight when I was working with Morgan Stanley or or even later on, you know, December fourth quarter was down, was a big drop starting one.

We had just been acquired by Media Asset, and there was a lot of like I see the performance of our business, and it was a challenging a quarter or March of twenty with COVID COVID nineteen. But I think when you've done this long enough. Quite frankly, that doesn't really matter in the long termship. I always told the team, they's do the right things with the right team at the right time, and let's focus on the long term, and if we do that, we'll just be fine. You know,

I haven't asked you about China. You have a handful of smaller funds that have been China focused. What's it like investing there, especially with the local versus overseas investors. It seems like they've been an unusually challenging region to

put money to work in. I mean, of course, of course we've seen a lot of volatility coming out of China, but very We have a ton of experience dealing with with China, and one of our first it s was our China Consumer it TF that we launched in two thousand nine, and then we launch in the Scember of eighteen, we launch a full suite of China sector ETFs tracking MSCI in this and it was a direct reaction to client the man I think and enough the day is

the second largest economy in the world, and it's an increasingly diversified economy. So we were getting questions from clients that they wanted to play China, but they didn't want to just buy the China large crap product. They wanted to invest in China healthcare, or China technology or China energy.

So we came to market with what I think is that only a family of China sector E T s offers all of the A T s and it's been challenging at times very but going back to the point of proud development, if you are following a robust product development process, you should not experience any challenges in dealing with these markets for a number of reasons, because it's part of the index methodology that you are accounting for

some of these potential challenges. For example, you include filters around average daily trading volume for liquidity for liquidity, or for example, you don't include companies that have less than a hundred million dollars in market caps, so if a company drops below that level, is automatically removed from the index at the next rebalance, and by doing so, you eliminate the challenge of having to trade in some of

those liquid names. And again, we've been trading our China consumer it TF for almost thirteen years and we haven't faced any significant challenges because you can. Our portfolio management team and our product team have plenty of experience dealing with these markets. So how much marketing goes into rolling out a new e t F? You know when we see every day I see a list of new ETFs that come out every week, and some of them are always kind of surprise me. I don't understand why anybody

is rolling that out. And every now and then something will come out and like, oh, clean water, of course that makes perfect sense. How do you market this to the advisor community? How do you market this to the investing public? Great question? I mean, I think without a doubt in the a t F industrting marketing is extremely important particle for a company like Global ex that is still like an up and coming at F player, because

it's important. Brand awareness is critical. People will not come to buy our it t F s if they don't know that Global ETFs exists. So so we have been investing in marketing for several years purely from a brand awareness standpoint. But that aside. The way we actually market our ITTs for retail clients and financial advisors is mostly through our research, right, I think ever since we started

the business, because we were very, very small. We realized that we needed to give ourselves the credibility in the space that we didn't have because of our size, and we did that through research. So we have what, in my opinion, of course, very I'm biased, but I think we have the most robust research platform in the A t F industry, and I think our clients appreciate that because when they invest in a global e CDF, they're

not just buying uh an E t F products. There they have access to all research analysts, they can come to our website and pretty much on a daily basis, we are providing content to our clients so they can really understand the dynamics behind the products in which they are investing, and that's very powerful. So I know, you obviously think thematics have a lot of room to grow. What sort of directions do you think thematic ETFs are going to head into. What's next for the E t

F space? I mean, I think in terms of going back to the common time made earlier, very innovations just happening anywhere in the world and at the fastest space that we have ever seen in history. So it will be surprised, how you know, we have right now there is six thematic it as well. There is no shortage of ideas, and there are lots of different areas in which we're looking as you can think things like quantum computing.

There is a lot of activity in the detailed assets spacemen though right now there is a lot of like noise in the market around that particular thing. But we continue to see plenty of opportunity. And again it's not just a US phenomenon. We've seen this growth in other markets around the world. I mean just in the US.

If you look at assets in thematic ITFS five years ago, the number was roughly five billion dollars and at the end of one we're talking about a hundred and twenty billion dollars in a um very significant pattern, kind of out of Europe as well. So take us through the process. Somebody, one of the researchers comes to you, Louise, I have this great idea for thematic investment it's X. What is the process like from turning that idea into an actual E t F. So the first thing is we challenge

ourselves does it DA makes sense? So let me use an example. Let's say electric vehicles, which obviously is an idea that we already have. But let's say it's a symbol on that d R I V drive drive hopefully like that ticket to Yeah, no, it's very I picked that one. So that's quite particular, particularly proud so um So this idea comes in from one of our research or product analysts, and we have a proud Development committee

meeting in which someone should just electric vehicles. Of course, they put forward a very robust analysis where they look at target addressible market penetration rate and they're more like industry dynamics. And in this part of work, case is very obvious that it is a significant shift towards a more sustainable world. Right, you have lots of catalysts towards more adoption of electric vehicles and government support incentivizing clients

to buy electric vehicles. US. The cause of electric batteries has gone down significantly because of the cause of lithium batteries coming down significantly, and even the charging infrastructure behind um. The adoption of electric vehicles is getting better and better. And on top of that, it's still very early because electric vehicles cells double in one and that is still nine of torouct ourselves. So the potential is very, very significant.

So we look at all of these data and we make the assessment that is an a part of it is a thing that could be very powerful over the coming decades. So the next step is we look at, okay, are the enough public companies whose products and services are dedicated to provide exposure to electric vehicles And that's when our research and product teams working COSSE with index providers, come up with them companies that typically it at least

fifty of their revenues from the electric vehicles space. And then once we have like a universe of like forty fifty companies as when we start refinding that process with our portfolio management team, our PORTFOLI administration team, just to make sure the internsal liquidity capacity of their strategy and makes sense. And once we have a preliminary index, that's when we start the process of bringing that e t F to market. So I could see clearly Tesla, Lucid,

Rivan some clear purity tfs. You have the battery companies, which is Panasonic to everybody else, Um, there's Electrify America. They're all these network charging What do you do with companies like Ford, for example, which has been very aggressive in rolling out A t F s. Clearly it's not half of their business, but they're moving in that direction.

We look at Volkswagen Autie Porsche just a huge run of E t f s, and then we see the Korean companies Undai Kia also very aggressively pushing in t tfs. At what point do the legacy automakers become electric fight enough that you would think about putting them into that E t F that's a great question, very and it's and it's a very very important part of our product

development process. And that's something that we've been very careful over the years because I did know that day when a claim by is one of our thematictives, we want to make sure they get the exposure that they are looking for. And to your point, do you want to include a company like four in an electric vehicle c TF if maybe like five percent of the revenues is coming from electric vehicles, then is that really the explosion

of our clients are looking for. Probably not, So it may change on the product or the theme, but typically we apply a fifty revenue threshold for inclusion in the theme. In this particular case for for companies is relatively straightforward. That may be a little bit more challenging in other areas like genomics and biotechnology because many of these companies don't have revenue to begin with, so it's a challenging.

But then we look at things like research and development, the type of problems that they offer to really make sure that we as a as a group, as I would probably development team, it feels strongly that that company should be included in the thing that we're trying to provide exposure to. So it'll be interesting to see how long it will be before Mercedes, BMW, Ford, even GM hit that fifty number, because I don't think that's twenty or ten years off in the future, that that could

be five years off in the future. Ford is electric or electric hybrid. Yeah, I mean, from from the information that we are right now reviewing, all of these companies have a very aggressive just strategy towards the production of electric vehicles or hybrids. But they are all active looking into the space because they can clearly see the trend. If anything, quite frankly, governments around the world and this and focus towards a more sustainable economy is very very clear.

So I think many of these car manufacturers can see the writing on the wall. So let me throw you a curveball before we get to our favorite questions. And that's how often you get back to uh Spain? Every time I've been to Spain and I've left just delighted and I'm looking forward to going back. When was the last time you went back? There's the answer is the answers.

I don't go back enough, to be honest with you, but I usually go there every single Christmas because my family, I mean, I've been now in the US for twenty years and I have my own family here in in New York in Brooklyn, but the rest of my family is still in Spain. So I go there always for Christmas because it's a very special part of the year for for Spanish people and our and our culture. Where in Spain it's a very small town called I would be very surprised if you know about it, because people

from Spain don't know about it. It's two hours if you go from Madrid towards Valencia. He's approximately right in the middle, two hours away. So the Spain parts of Spain that I'm familiar with, Bill Boo where the Google Him Museum is, which is lovely um San Sebastian, which is one of the most lovely spots in the world. And then of course Barcelona. The last time I was in Barcelona was in the midst of the Catalonian uprising, so everything was closed. People were a million people marching

in the streets. It was. It was very um, peaceful and well organized. But when you see him, literally a million people marching past the police headquarters, which is across the street from our hotel, I've never experienced anything like

that in my life. It was amazing. Yeah, It's definitely been a very very big part of the political conversation in Spain now for for many years, and unfortunately, for the last five or six years, those types of conversations around the independence of Catalonia from Spain seemed to escalate, but unfortunately the conversation seems to have one down a little bit, which I think is good. I think there were more Michelin star rated restaurants in Barcelona than I

think in Paris, I think than any other city. You google Michelan star rated restaurants and up comes a list of like forty places. It was. It was really It's an amazing city. It's beautiful, The one thing that whenever I visit Europe and I come back home is Wow, those folks really know how to kick back, relax a little bit, and enjoy life. It feels like in New York it's just go, go, go, work, work work. The Europeans have a much more chill approach to dealing with life.

Do you miss that at all here in New York? I certainly, I certainly do. There's definitely a different pace to life when you go to euro particle in Spain, I mean, if you go to southern Europe is even more different from you know, with respect to for example, New York, and I definitely, I definitely am miss that. I think one of the the biggest benefits of a country like Spain is that you can live very comfortably

with not a lot of money. And I think quality of life is is overall like better than what you can see in in for example, New York. It's less stressful, to say the very least. They now to eat, they to drink wine, They now to just kick back and relax. I think we can all learn a little bit, at least I feel like I would like to learn how to throttle back a little bit. They have it down to every time I'm there, I'm like, God, this it's beautiful. Everybody seems to be very happy and chill. It's really

a wonderful part of the world, you know. And things have definitely changed. But I've been growing up. I mean my parents, my mom and my dad, they were both teachers, like middle school teachers, and we used to go to school in the morning and then go back home. We will have lunch as a family, we would take a nap, and then we will go back to to to school.

So it was definitely a different pace. And even today, like I'm texting with with my friends and they're getting ready for the holidays and they're having dinner at eleven pm. So it's definitely a different, different place. And I think that is but it goes both ways. For example, when I'm so used now to the New York lifestyle that speed speed, and when I go back to Spain and I have to go to the bank to do some sort of transaction and it texts forever, I do get

very frustrassed. I guess it's like a double edged sword. You have to learn how to leave the New Yorker behind. Like when I go on the k s, it's twenty four hours before my walking pace begin to slow down. Although I can tell you I can very much embrace the idea of midday siesta. I can. If I could work that into my routine, I think my my level of chill will be much better than it is currently. It's a It's something that we very much can learn

here from from Europe. Absolutely, I think that you should definitely look into that. So let's jump to my favorite questions that I asked all of my guests, starting with what kept you entertained during the lockdown in Brooklyn? What were you watching or listening to? I mean, honly I don't watch a ton of TV. I think I mentioned earlier. I have like a four and a half a year all that gives me really entertained, and between that and

global legs, I don't have a ton of time. So I al really tried to watch documentaries because they are definitely shorter in nature, so I don't have to watch three seasons to you know, finish the story. So I really I've been really into business documentaries. Literally, I watched HBO documentary on Warren Buffett, which is the one that I deeply admired. I was also watching recently a documentary on en Roun, which I didn't know the story to hell of a story. It's a health of story. I mean,

you know a little bit. But I now we're living through it all over again. I know it's actually very very relevant. And I guess the last couple of days, I've been watching a documentary about FIFA on the World Cup. You know, it's funny because I was a World Cup fan like twenty years ago and I just fell in love with the pace of the game. And this year it just seems like it's become so politicized and quatar and the no beer and it's just it's just kind

of crazy. Um. But I watched the U s Welles match. I've never seen a draw that felt like a loss. You know, it was like, wait, what spoiler alert? I hope, I hope everybody's already already watched that. Um. But it's a lot of fun to watch, isn't it. I love it and I quite frank I mean it's um. When I grew up, playing sports is a big part of who I am, and I just love watching the World Cup. It is true that this year's World Cup feels, for whatever reason, a little bit different. But I will tell you.

I mean, when I first moved to Chicago from Spain, it was two thus on three just crazy. Has been like already twenty years ago. If I wanted to go to a restaurant or a bar to watch the game, it was really difficult to find a restaurant or a bar. The two thousand and three, like really four years later, definitely, I think because of the women's soccer team and how did so well, there was definitely a lot more attention towards towards the sport because in really four years you

were able to watch games everywhere. But there was definitely like a big transition there. I found World Cup because around the same time, oh two oh three, my wife and I run a cruise and you run around all day and then you come back to the room about three in the afternoon and it's taken nap before dinner, and I would flip it on the TV and there was World Cup, or I would go to the one of the bar and the whole staff is watching World

Cup and it was really fascinating. You have to give it a little time to get into the ebb and flow of the game and suddenly you find it's so different than football or baseball. It just has these natural waves. It was a lot of fun and I look forward to it every couple of years. It's really a blast. When I was in Chicago, mean, why are they? Probably my best experiences in Chicago was going to Spain won the World Cup in two thousand and all of my friends.

I was working with Morgan at that time, all of my friends and I went to like a bar by the Chicago River and you know, we want. Of course, I would very happy for me, and then because it was a long, long day for all of us, I'm sure, let's talk about some of your mentors who helped shape your career. I mean this may sound I mean, of course, there are lots of people have helped my career over

the years, and people have been very helpful. So this may come across as maybe maybe a little bit to touch you, Philly, but I will actually say my mom and my dad very because at the end of the day,

they've worked very hard. They work very hard when I was growing up to give me like a really good education, and that's something that I'm very very thankful for because they were teachers, so they don't have many resources, and they worked very very hard Unque frankly because of the values that you know, over the years they kind of made me. And we're out because I know the day things like you know, being thoughtful, being kind, work, ethic, positivity.

I think you learned that at home and you know, whether you realize it or not, I think every single decision that you're make in life is made through the lens of your values. And that's why I think it's it's so important. I'm very thankful to my parents for that good answer. You're you're not the only person who have brought up their parents or their or their father as as a as a key mentor, and I hear

it pretty regularly. Let's talk about books. What are some of your favorites and what are you reading right now. One of my favorite books is A Month's Search for

Meaning by Victor Franco. It's about the experiences of a prisoner in a Nazi concentration camp and it goes through that, you know, some of the challenges, is about inner strength, positivity, resilience, and it's a book that I always find extremely useful, particularly when you are going through a rough time in life, which are is it can happen to all of us. I always find myself going back to that book because

it really helps me put things in in perspective. Right, everything is relative, and no matter how bad your day is, it ain't that bad relatively speaking. So I've always find myself going back to that book. And then now more recently, there like a different more more of an easy read. I'm reading a book called Atomic Habits by James Clear That is, I mean, the value proposition is very simple, is about how little adjustments in love in your life

can lead to really remarkable outcomes. And I'm finding it's very It's a very easy read, but very interesting takeaways. I'm trying to remember who who said the quote you build your habits and then your habits build you. Um. And I have that book at home in my queue. I haven't gotten to it, but I've heard really good things about it. I just want to recommend it because it gives you, First of all, it highlights the importance

of having good habits, but it goes beyond that. It's actually giving you some practical examples of how you can create habits in a much easier way. So very very powerful. What sort of advice would you give to a recent college graduate who was interested in a career in either investing or E t F s or working thematically. I think it would be to just try to talk to as many people in the industry as as you can. I think you know part in our case of of

the A t F industry and asset management. Talk to portfolio management managers, pro development teams, research allies to try really get a good sense of what our industry is about. If you do that consistently, I think a few things will happen. One is that you will learn a lot about the industry too. Whenever you make the final decision of entering the industry, that decision will be a much more informed decision that if you had not gone through

this this process. And finally, quite frankly, I would not be surprised if you end up working for one of the people that you actually interviewed over that kind of networking process really interesting. And our final question, what do you know about the world of thematic e t fs, investing, UM and just exchange traded funds today? You wish you knew twenty five years or so ago when you first began your career. Probably the biggest lesson is that the

investment management industry is it's a marathon, it's not a sprint. UM. I think patience is probably one of the most underestimated skills in our industry, and I think it's incredibly important. And I was definitely very impatient in my early twenties, but I think I want to think at least that over the years, I've become much more patient, and I take my time to make some of the more more important decisions, and I definitely think more with a long

term horizon in mind. Get rich slowly is always good advice. Louise, this has been absolutely fascinating. Thank you for being so generous with your time. We have been speaking with Louis Bruga. He is CEO of Global x E t f S. If you enjoy this converse station, well, be sure and check out any of our previous four hundred and fifty discussions we've had over the previous eight or nine years. You can find those at iTunes, Spotify, YouTube, or wherever

you get your podcasts. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. I would be remiss if I did not thank the crack team that helps us put these conversations together each week. Bob Bragg is my audio engineer. Attika val Bron is my project manager. Paris Wold is our producer. Sean Russo is my head of research. I'm Barry Retults. You've been listening to Masters in Business on Bloomberg radioa