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DMS: Index Funds Best to Optimize Long-Term EM Potential

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Peter Kohli, CEO of DMS Funds, always felt that without access to single country index funds, his clients were missing out on great investment opportunities in the developing world.

Passive, benchmarked index funds in liquid and well-regulated markets with sound investor protections in place were the way to go. These kinds of structures offer long-term investment potential against the backdrop of the themes common to the growth of emerging and frontier markets.

Kohli, who was born and raised in India, felt that India was the best place to begin. “India is a major economy and it is politically stable, which is very important to me. India has great long-term potential and that fits in well with our long-term investment philosophy. Our biggest investment theme is the consumer economy — a middle class that is expanding and looking for goods to buy. India is a perfect example of that: The middle class is expanding hugely now and many more people have money to burn,” he said.

Based on that premise, Kohli teamed up with the NASDAQ to offer two India funds, the DMS NASDAQ India Bank Index Fund and the DMS NASDAQ Mid-Cap Index Fund. The former is based on the NASDAQ India Mid-Cap Sector Capped 20 Index, which comprises midcap stocks with no individual sector exposure exceeding 20%.

These companies represent a broad spectrum of rapidly growing industries essential to India’s continued economic growth, Kohli said, and serve as a benchmark for the midcap portion of Indian stocks.

The DMS NASDAQ India Bank Index Fund is based on the NASDAQ India Banks Index, which comprises the largest banks listed on Indian exchanges and serves as a benchmark for the capital market performance of India’s banking sector, which Kohli is very bullish on.

“I’m not big on India’s public sector banks but the private sector banks, including HDFC and Yes Bank are extremely well run businesses that make a lot of money,” he said.

Kohli constantly has his eye to creating investment vehicles for “upcoming, dynamic countries that want something else.” Myanmar, for instance, is a nation that has emerged from the dark shadows of a decades-long military dictatorship and is going through some major changes. Indonesia has a booming middle class and good leadership. And Vietnam, which is top on the list for Kohli even though it is a communist country, is moving firmly in the right direction.

“Vietnam’s prime minister is very aggressive and has said that he wants all state-owned enterprises to privatize,” Kohli said.

And polls have shown that 96% of the Vietnamese population believe that capitalism is the best system, so “even though Vietnam has a few hurdles to overcome, it’s a prime investment destination for me,” Kohli said.

In June 2013, DMS launched the DMS Baltic Index Fund, based on the NASDAQ OMX Baltic Benchmark, which comprises the stock exchanges of Estonia, Latvia and Lithuania. The index consists of the largest and most actively-traded companies, representing all sectors that are listed on the NASDAQ OMX Baltic Market and the DMS Baltic Index Fund is the first mutual fund in the U.S. based on the OMX Baltic Benchmark and the first U.S. mutual fund based on a NASDAQ OMX Global Index.

“I love the Baltic countries because they didn’t take a bailout from the European Central Bank during the 2008 crisis,” Kohli said. “They went through an internal devaluation, incredible GDP contractions, but they came out screaming from the recession. They have a better understanding of capitalism than we do because they have been denied it for so many years. I love going to Vilnius and getting out of my hotel and just standing there, breathing in the energy.”