International markets are one of the few areas where active strategies seem to provide real value. According to Morningstar’s Active vs. Passive Barometer, more than 63% of active managers beat their average passive peers in mid-2023. And in particular, foreign large-cap value funds had the most success in beating out passive funds.
While Russia and China represent riskier markets these days, investors would be remiss to avoid the other BRIC emerging markets: India and Brazil. India’s economy is expected to deliver annual GDP growth of more than 6% in 2023 and 2024, while Brazil’s abundant natural resources and steady economy make it a bellwether in South America.
In this article, we’ll take a look at two new actively managed Global X ETFs to help you capitalize on these trends, as well as explore some other top-performing global funds.
Making a Case for India and Brazil
Global X believes 1 that India and Brazil are moving away from asset-heavy, low-return business models toward innovative, well-run, profitable sectors. With higher-paying jobs, these new sectors could help both countries grow their middle class and usher in consumer-driven growth through spending on education, healthcare, technology, and consumer goods and services.
These countries could also benefit from economic tailwinds. For instance, Brazil’s independent central bank raised interest rates to 13.75% to control inflation and recently began cutting rates. These moves could reduce interest expenses for Brazilian companies and result in lower investment discount rates and potentially higher valuations.
In India, the government has taken steps to formalize many parts of its economy, simplify its tax system, and encourage improvements in both economic capacity and productivity. With its young workforce, these changes are levers that could add leverage to an economy that’s already well-positioned to outperform aging developed markets.
Global X Takes an Active International Approach
Conventional international ETFs rely on ‘national champions’ and state-owned enterprises to drive growth. And the difference in size between these companies and the rest of the economy can skew performance and reduce diversification. As an example, the top five companies in the MSCI India Index represent about one-third of the entire benchmark index.
Global X’s active approach focuses on identifying high-conviction ideas based on a bottom-up, fundamental company analysis. By looking for companies with sustainable growth, an attractive valuation, and durable competitive advantages, they build a portfolio weighted by the merits of each investment while ensuring that the whole reflects the broader market.
What’s In the Two Active ETFs?
The Global X India Active ETF (NDIA) holds a portfolio of 31 companies with no single component having more than an 8% allocation. In terms of sector exposure, 30% of the fund is financials, 15.5% is information technology, 13.6% is consumer staples, and 10.8% is consumer discretionary with a 22.43x average price-earnings ratio.
By comparison, the iShares MSCI India ETF (INDA) holds 122 companies with an average P/E ratio of 26.60×. Meanwhile, the fund holds less information technology and far less in consumer staples while providing more exposure to sectors like energy.
Similarly, the Global X Brazil Active ETF (BRAZ) has a portfolio of 29 securities with no stock accounting for more than 10% of the portfolio, although the largest holding is (predictably) Petrobras. Meanwhile, the fund invested primarily in financials (31.8%), energy (19.2%), and materials (17.2%), providing more exposure to natural resources.
Meanwhile, the iShares MSCI Brazil ETF (EWZ) holds 49 companies, including a 13% stake in Vale and a 9% stake in Petrobras. The fund also allocates far less to utilities, financials, and consumer discretionary, reflecting less investment in the middle-class consumer.
Both Global X funds charge a modest 0.75% expense ratio, which is in line with many other actively managed international funds, although slightly more than passive ETFs.
Alternatives to Consider
International Active ETFs
These funds are selected based on YTD total return, which ranges from 9.5% to 12.5%. They have expenses between 0.18% and 0.36% and AUM between $3.3B and $5.9B. They are currently yielding between 2.1% and 3.9%.
| Name | Ticker | Type | Actively Managed? | AUM | YTD Ret (%) | Yield (%) | Expense |
|---|---|---|---|---|---|---|---|
| Dimensional International Value ETF | DFIV | ETF | Yes | $5.83B | 12.5% | 3.5% | 0.27% |
| Dimensional International Core Equity Market ETF | DFAI | ETF | Yes | $4.03B | 11.5% | 2.1% | 0.18% |
| Dimensional International Core Equity 2 ETF | DFIC | ETF | Yes | $4.11B | 11% | 2.9% | 0.23% |
| Dimensional World ex U.S. Core Equity 2 ETF | DFAX | ETF | Yes | $5.75B | 10.7% | 3.7% | 0.30% |
| Avantis International Small Cap Value ETF | AVDV | ETF | Yes | $3.38B | 9.5% | 3.9% | 0.36% |
The Bottom Line
International markets are a sweet spot for many active managers. Rather than investing in the largest ‘national champions’ and state-owned enterprises, these managers can cherry-pick the fastest growing, most undervalued, or best-positioned companies regardless of their size. And India and Brazil could be two of today’s most attractive international markets.
1 Global X (August 2023). Introducing the Global X Brazil (BRAZ) and India (NDIA) Active ETFs
