Q & A: Van Eck Global to go abroad with small-cap funds

By David Bogoslaw

Investing in small-cap stocks is a classic way to try to enjoy the early stages of economic recovery. The reasoning is simple: Small-caps tend to be more oriented towards national and less vulnerable economies with global economic trends than large firms. Investors are already doing, a great game U.S. small-caps - the Russell 2000 index hit a new record on 6 April, although it slipped slightly since. Now investors are more and more to be launched on the possibilities to invest in small-cap funds focus on foreign markets. One of the more recent arrivals: the Fund Market Vectors Russia Small - Cap Exchange - Traded (RSXJ) unveiled on 13 April.

The ETF is the fifth specific to each country or region specific Small-Cap Fund Van Eck Global has launched over the past two years. Rebound of the Russia of the financial crisis of 2008 has been slower than that of the emerging economies, but Van Eck sees encouraging signs for investors: credit expansion in progress, the beginning of the growth of real wages and a business climate sunny in Government promises to loosen restrictions on foreign investment. Other benefits include the need for an increase in infrastructure spending before the Russia hosts the 2018, World Cup, and General Electric (GE) entered into joint ventures with companies controlled by the State to produce equipment for energy systems and Russian health care. Bloomberg Businessweek spoke with Portfolio Manager Van Eck David Semple and Adam Phillips, General Manager of ETFs on the deployment and the general appeal of small-cap funds. The following is a transcript revised comments.

BBW: This is the second ETF small-cap that Van Eck was launched this month [the market vectors Germany Small-Cap ETF has become available April 4]. That could be considered as denier at a time when most strategists favour large cap for their greater exposure to the global economic recovery.

Adam Phillips: Van Eck was believed for a long time, is one of the best ways to capture exposure to an economy low capitalization of the stocks. Which is highlighted that come from different countries of the financial crisis at different speeds and for different reasons. Investors may or may not searching for names global mega-cap related to the global economy. They seek to their international equity allocations to capture compelling themes and stories in the emerging economies. And some of the BRICs [Brazil, Russia, India, China] come to mind. Some investors who want to be a little more tactical are more inclined to consider an ETF small cap which can provide more efficient access to a market given.

What convinced you that the time had come for an ETF small Russian capitalization?

David Semple: It is very simple to see where was the demand from investors. If you want that exposure to the strong increase of the tax expenditure taxes higher for Russian energy companies have made possible, but do not want to risk associated with major oil companies and gas, an ETF small-cap is a good alternative. And since the company-specific risk may be higher in Russia, a portfolio approach seems to agree many passive investors. UBS estimated last September that the relaunch of the Russia is now 7 to 8% of its domestic product gross. If you calculate the GDP with an average price of oil $75 per barrel, this stimulus comes to 100 billion dollars per year. It is all in the economy and is reflected in the low interest rates, increasing and more employees of public sector pensions. The Russia has won $ 1.5 trillion in exports of oil and natural gas from 2000 to 2010 and collected taxes worth a fair part of this.

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Bric leaders say increasing commodity prices poses threat to global growth - Bloomberg

BRIC leaders called for "more attention to the risk of massive cross-border capital flows" and said that the Monetary Fund International should continue to look to overhaul the role of special drawing rights as an international reserve currency system. Photographer: Nelson Ching/Bloomberg.

The leaders of the Brazil, Russia, India, China and South Africa, said excessively volatile commodity prices pose a threat to the global economy and called for greater regulation of derivatives markets.

Volatility "poses new risks for ongoing recovery of the global economy," the leaders said, according to a news release from their Summit at Chinese station of Sanya. The BRIC countries, such as the five is known, also called for greater vigilance on the impact of the movement of capital from developed economies in emerging markets and agree on a plan to make more loans in local currency.

Rising food and of fuel, prices are inflexible importers like China and the India to maintain low prices for their 2.6 billion people. Export of the country such as the Brazil, the Russia and the South Africa benefit from trade, but are concerned will that rely too heavily on resources stifle diversification of their economies, leaving vulnerable should stop the application.

"Budgetary prospects for emerging economies are more favourable, but this partly reflects the rear high asset and the prices of raw materials, low interest rates and strong capital inflows," International Monetary Fund said in a report this month. A "the reversal could leave exposed posts."

China is the largest importer in the world of soybeans and consumption of energy, according to oil imported to stimulate economic growth. In India, where hundreds of millions of people live in poverty, also said concerned about rising food prices.

"Regulation of the market for derivative products should therefore be strengthened to prevent activities capable of destabilizing the markets," said the document.

Corn, coffee and cotton prices were all more than doubled on the global markets last year, while crude oil prices are up 42% in London. Chicago Wheat futures are likely to increase by $8.60 a bushel before 31 December, 31% up from brokerage low, based in Paris this year, said OTCex group earlier this month. Corn can reach a record $ 10 per bushel, Alex Bos, an analyst of Macquarie Group Ltd. said on 6 April.

This year China expects to import of 57 million tonnes of soybeans, or almost 60 percent of world trade of animal feed and ingredient in tofu.

The release of BRICS called for greater cooperation on food safety to the lack of reliable information and timely time on the supply and demand. The international community was needed to work together to increase production, increase technological support and financing for the developing countries in "create a more equitable and just world."

In a separate agreement, the heads of the five development banks agreed on working a plan to increase the use of local when currencies make loans to the other.

"We talked about how to move more quickly to the use of national currencies," said Medvedev. "I just had a meeting with the President of the Brazil, and we have agreed to intensify work on a possible switch." We could think of such a system with the BRICs. ?

The combined gross domestic product of the five so-called BRICS nations Eclipse the economy of the United States at the end of 2014, International Monetary Fund projected published this week. The euro area will be exceeded this year, data showed. By 2016, the BRICs will have a combined GDP of $ 21 billion from a projection of 18.8 billion for the United States, according to the IMF.

Deputy Prime Minister Sergei Ivanov, said that more than US $100 barrel of oil prices are discouraging Russia diversify its economy. Ivanov, said the current price was unsustainable and that the budget of the Russia will fall into a deficit when it falls.

"When the rain of gold is poured over your head, you did are not motivated to diversify," Ivanov said in an interview on April 7 in Miami. "I would say I hate high oil and gasoline prices, but I am not happy with them.".

Bank of America, Merrill Lynch, said that it expects crude to decline later this year, as increases in prices curb demand.

Brent on average US $94 per barrel in the fourth quarter, analysts at the Bank, led by Blanch in Francisco based in New York, said in a report earlier this week. It is approximately 23% less than the current level of prices.

Gross Brent advanced to more than $127 a barrel on the ice London futures exchange this week, the highest level since August 2008 and approximately $20 price record of the year for 147.50 Brent $ per barrel.

Chinese President Hu Jintao and other leaders of bric also called for "more attention to the risks of cross-border capital flows" and said that the Monetary Fund massive International should continue to examine the role of special drawing rights as a system of reviewing international reserve currency.

"The structure of management of international financial institutions should reflect changes in the global economy, increasing the voice and representation of emerging economies and developing countries," said the press release.

At the Summit of Sanya, HU is joined by Russian President Dmitry Medvedev, the Brazilian President Dilma Rousseff, South African President Jacob Zuma and Indian Prime Minister Manmohan Singh.

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To contact the editor responsible for this story: Ben Richardson at brichardson8@bloomberg.net

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