Last week on the Nigerian Stock Exchange (NSE), Vetiva Fund Managers Limited, a wholly owned subsidiary of Vetiva, listed the first equity-backed Exchange Traded Fund called Vetiva Griffin 30 Exchange Traded Fund (VG 30 ETF).
The VG 30 ETF is an open-ended fund that tracks the performance of constituent companies of the NSE-30 index and replicates the price and yield performance of the index. With this listing, investors who prefer to trade in an equity type consult can get instant equity diversification with this ETF product.
Exchange Traded Funds (ETFs) are passively managed and replicate the performance of an underlying index or basket of securities.
ETFs combine the characteristics of Mutual Funds and Stocks; ETFs trade on a Stock Exchange like any other listed security; the performance of an ETF tracks the performance of the underlying basket of Securities or Index; ETFs are commonly used to track indices, commodities or a basket of securities.
Since ETFs were introduced in the 1980s, they have quickly gained popularity as investors looked for alternatives to Mutual Funds. Currently across the globe, ETF industry has 5,042 ETFs; 10,053 listings; Assets of $2.3 trillion; 215 providers, and 58 exchanges. Annual Growth of 15 percent – 30 percent is predicted around the globe in the coming five years.
The VG 30 ETF trades like any other stock. The price will therefore be determined by forces of demand and supply. Trades in VG 30 ETF will settle on a T+3 basis; Securities will reside in CSCS accounts (just like any other security). Secondary Market trading in VG 30 ETF will be enhanced by Vetiva Securities Limited as Authorised Dealer to the Fund.
The NSE 30 Index returned 42.7 percent in 2013. Back-testing data suggests an investment in the VG30 ETF over the same period would have yielded approximately 42 percent.
The Fund will be regulated by the Securities and Exchange Commission and the NSE. A Trustee has been appointed to ensure adherence to the Trust Deed and the underlying assets will be held in a Trust Account. The underlying assets of the VG 30 ETF would be held by a custodian on behalf of the ETF Trust. The Register of unit holders will be independently kept by the Transfer Agent (CSCS).
Oscar Onyema, CEO, NSE, said: “This is indeed a major milestone in the remodelling of the capital market landscape, and it marks the beginning of a new era in product offerings for investors in particular, and the market in general.”
According to him, ETFs have experienced astounding success as the fastest growing investment product of the last 20 years. Global assets grew to $2.25 trillion in 2013, registering over 28 percent Year-on-Year growth. Out of the total growth, new cash flows contributed 14.7 percent (+$259bn), while the remaining 13.5 percent came from asset price increases.
In 2013, ETFs accounted for 27 percent of all equities trading in the US. Collective investment schemes are not new to our market. Today, there are over 20 mutual funds on memorandum listing on the NSE, but with ETFs, investors get the diversification offered by mutual funds, along with the intra-day price discovery of equities, all in one product.
Onyema said: “The Griffen 30 ETF tracks the NSE 30 Index – which is comprised of the top 30 companies in terms of market capitalisation and liquidity. The index serves as the flagship benchmark for the market and could be seen as a basis for creating ETFs – like the Griffin 30 ETF, and other types of investment products, to broaden the range of financial instruments traded on The NSE and on other exchanges.”
He further said: “I would like to highlight some key facts with regards to this offer: The Offer size is 100,000,000 units (At a unit price equal to 1/100th of the value of the NSE 30 Index on the day preceding the Subscription). The Subscription rate is 159.4 percent (all of which was absorbed). Six applications for 159,400,000 units valued at N2,941,874,901.20, were received in connection with the offer.
“The Underlying Portfolio will be held within the VG 30 ETF Trust for the benefit of Unit holders.”
He added that “it is anticipated that the VG 30 ETF Trust will distribute semi-annually on any net income available for distribution within the VG 30 ETF Trust and that Holders will participate on a pro rata basis in such distributions. However, there can be no guarantee that Holders will receive semi-annual distributions. Also, no PFA invested in the offer and the index licensing fees for the first quarter has been paid. Investors who prefer to trade in an equity type consult can get instant equity diversification with this ETF product. In recognition of the immerse potential inherent in ETFs, the Exchange has created other tradable indices to track various sectors of the market and we look forward to working with issuers such as Vetiva to roll them out.”
The Fund also seeks to give investors optimal exposure to the Nigerian bourse (over 90% exposure on a market capitalisation basis). The underlying securities are held by a Custodian in the name of a Trust for investor protection. The entry and exit costs for ETFs are generally lower when compared with traditional Unit Trusts. It is expected that the fund will pay bi-annual distributions.
Iheanyi Nwachukwu
