The bulk of the fund’s underlying index comprises the basic materials (44 percent) and energy sectors (37 percent). Kazakhstan is the largest country represented in the index by far (46 percent), while other sizable country holdings include Russia and Mongolia (14 percent each).
According to fund literature, the IMF has forecast 5.5 percent GDP growth this year for energy-exporting Central Asian countries, while the Economist Intelligence Unit expects Mongolia’s GDP to grow almost 14% this year, or the second-highest growth rate in the world.
Perhaps one of this ETF’s biggest strengths––Central Asia’s strong commodities-based trade ties to China––is also one of its biggest risks because the collective region could get whacked by a downturn in the Chinese economy.
"These clearly are high-risk, high-reward types of investments," says Bruno del Alma, CEO of Global X. "They are very focused and tactical. As you move into frontier markets you're taking on more risk, but these are places where you can see significant return potential if they move up on the development scale."
Global X, which has $1.8 billion in managed assets, has been diversifying its product lineup with a suite of income-generating funds focused on preferred securities, dividend-paying companies and master limited partnerships. The company has been prolific since it launched its first ETF four years ago, but del Alma says the company probably won't launch as many new ETFs going forward and instead aims to consolidate assets in its existing funds.
"But we'll continue looking for opportunities in international, commodities and income-generating products," del Alma says.