Today Holderith's startup firm, Emerging Global Advisors, occupies a busy office in New York City's Chelsea neighborhood, where a handful of staff sit in one open-plan, cubicle-free room. The setting allows everyone from the firm's executives — including Holderith and Chief Executive Marten Hoekstra, former CEO of UBS Wealth Management Americas — to the national sales manager and staff to hear each other's conversations.
That frequently includes the calls that sales representatives make to clients. The question, "If we could build an [emerging markets] ETF for you tomorrow, what type of ETF would that be?" is a common inquiry, Holderith says. And that chatter among clients and employees, he says, is what can lead to the next investment idea.
That flexible approach to new product development, says Holderith, gets much of the credit for the firm's early successes — including a suite of emerging markets ETFs that helped the firm surpass $1 billion in assets under management in December. Clients range from wirehouse financial advisors to registered investment advisors, but all want the same thing for their clients: to provide access to the areas most poised for growth in the emerging markets.
Emerging Global Advisors aims to differentiate its products from other emerging markets ETFs by striving for the same approach that investors take to developed markets — drilling down on specific sectors and themes, such as consumer growth and dividends. That sometimes means working to design their own indexes to base the firm's ETF products on, rather than heeding to the MSCI Emerging Markets and FTSE Emerging indexes that track market capitalization-weighted broad benchmarks.
The firm's efforts come as amid a growing interest in emerging markets, which are expected to be a global bright spot this year. But ETFs are still not the preferred method for accessing emerging markets growth, as a December Merrill Lynch Global Wealth Management report shows.
That Merrill Lynch report foresees positive long-term cyclical and secular forces in emerging markets, and recommends using active managers to take advantage of the expected surges in spending and expansion of the middle class expected in the years to come. Emerging markets ETFs, according to the report, commonly err by focusing too much on commodities, infrastructure and materials.
ETFs that are weighted based on market capitalization also put too much emphasis on developed opportunities, says Lisa Shalett, chief investment officer at Merrill Lynch Wealth Management, who co-authored the report. "The problem is in rapidly growing economies and economies, where the mix is shifting very rapidly, market cap weighted indices can very often miss the future because they're based on the past," Shalett says.
With its suite of emerging markets ETF products, however, Emerging Global Advisors aims to overturn those perceptions.
Entrepreneurial Urges
At first blush, Holderith and Hoekstra might not be the most obvious candidates to lead a startup investment firm.
Holderith first delved into ETFs about 12 years ago at UBS, where he ran the firm's discretionary platform, Portfolio Management Program, and helped the firm's advisor force gain access to markets outside of the U.S. through ETFs. He also used ETFs as a strategy to get access to different asset classes in another role at UBS, helping advisors with client acquisition and asset allocation. He went on to run sales at ProShares ETFs from 2006 until 2008, when he founded Emerging Global Advisors.
"I'm an entrepreneur," Holderith says. "If you're an entrepreneur, you're always looking at opportunities and you're trying to listen to what people need. And when that need looks big enough that you think it's worth it to take the risk, to take it on yourself, you make the decision to go for it."
Holderith tapped Hoekstra to join Emerging Global Advisors in 2011. The two originally became acquainted at UBS predecessor firm PaineWebber, where Hoekstra had a hand in hiring Holderith.
"I had a presupposition that because I liked navigating big firms, that that's what I should do," Hoekstra says of his transition to Emerging Global Advisors. "I ultimately realized that all the things that I actually cared about accomplishing are neutral to size."
The firm now has about 20 employees, but its goals are far reaching. Both Holderith and Hoekstra say they're not aiming to make believers out of advisors who shun emerging markets. Instead, the firm works to help those advisors who may have a 10% emerging markets allocation in their own portfolios to help clients embrace a level beyond 3% to 4%.
