The Nigerian Exchange Traded Funds (ETF) market has shown potential for growth, though many investors are yet to recognise its promise.
In the less than four years since the market recorded its first entrants into the ETF space, there are three Exchange Traded products valued at N3.209 billion or 0.0178 percent of the total market capitalisation of the Nigerian Stock Exchange (NSE) as at August 6, 2014.
Regulators (apex and self-regulatory) and ETF providers emphasise the need for Pension Fund Administrators (PFAs), individual investors, foreign investors and portfolio managers to leverage on the products to diversify their portfolios and reduce market risks.
The Exchange Traded Funds at the NSE are NewGold ETF, Lotus Halal Equity ETF, and Vetiva Griffin 30 ETF.
“This investment vehicle gives investors a convenient way to purchase a broad basket of securities in a single transaction. Essentially, an ETF offers the convenience of a stock, along with the diversification of a mutual fund, in a more cost-effective structure,” Lotus Capital, a Lagos-based investment company, said recently at a structured seminar organised by the NSE for ETF providers.
Ojone Umoru, senior manager (legal) Collective Investment Services, Securities and Exchange Commission (SEC), said the Investment and Securities Act S. 13 (h) empowers the SEC to register and regulate collective investment schemes in whatever form – ETF inclusive.
“The commission has the discretion not to vary or allow a particular mode of offer if it is not in the interest of investors,” he said.
Comparison of statutory charges (sell side) on equities against ETFs shows a difference of 0.5964 percent in favour of ETFs; while on the buy side, the charges are the same.
On the sell side, charges to equities are 0.7050 percent, while ETFs are 0.1086 percent; on the buy side, the charges are same at 0.3750 percent, according to data from investment advisors at Lotus Capital.
“The best first step was to start with ETFs on highly liquid assets that were unavailable but attractive to the investors – such as NewGold,” said Michael Mgwaba, who supervises Exchange Traded Products at Absa Capital.
“The expected immediate benefits to the market was that it would help strengthen the regulatory/control/operational framework by implementing the proven international regulatory standards; it would provide immediate liquidity to the market and help satisfy the need of investors for liquid securities; it would provide investors with an access to previously unavailable asset classes, thus improving diversification opportunities and reducing investment risk,” he said.
Assets Under Management (AUM) in the global ETF market were put at $2.63 trillion as at July 2014, but Nigeria and other African and Middle East countries accounted for a paltry $46.8 billion, representing asset market share of 1.8 percent.
Of 5,249 Exchange Traded products existing in various regional stock markets, only 380 are found in Africa and Middle East markets, Nigeria inclusive, data from BlackRock, a global investment management company, shows.
Globally, the United States is leading the pack of ETF products with 1,624 ETFs valued at $1.85 trillion or 70.2 percent of the asset market share; followed by Europe with 2,205 ETFs valued at $469 billion or 17.8 percent of the asset market share. Canada has 317 ETFs valued at $66.3billion or 2.5 percent of the asset market share; Latin America has 41 valued at $9 billion or 0.3 percent of the asset market share; while Asia Pacific accounts for 682 ETFs valued at $192.7 billion or 7.3 percent of the asset market share as at July 2014.
