Old Mutual to list Zimbabwe’s first ETF next month

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Old Mutual Zimbabwe will list the country’s first Exchange Traded Fund (ETF) next month, a move which is expected to improve liquidity, diversify the current investment offerings at the local bourse and deepen the market.

The Old Mutual Zimbabwe Top 10 Exchange Traded Fund will be listed on the Zimbabwe Stock Exchange (ZSE) by way of introduction on January 4.

Zimbabwe will join other four bourses in Africa—South Africa, Nigeria, Kenya and Egypt—to trade the instrument.

The financial instrument which is as liquid as underlying financial assets, Old Mutual Zimbabwe group chief executive officer, Sam Matsekete, said this was coming at a good time when there is a bit of stability in the economy.

“It’s a new era in the Zimbabwe market, the first one to be launched and listed on the Zimbabwean capital market. In the region, we join four other markets that have done this,” Matsekete said.

“And on the face of it, I think, this is the best time for us to launch this. We are in the right position and the legislation is now in place and we also enjoy a stable environment. Stabilising economic fundamentals was key.”

Matsekete said Old Mutual was committed to supporting efforts that are aimed at developing Zimbabwe’s economy.

“If you look at the financial services we do at Old Mutual we go back to the basics of economics where one of the principles is that resources are scarce and recognise that they ought to be allocated efficiently,” he said.

Matsekete said the idea was to harness resources that are scarce, create some scale use into projects of development.

“When we develop products such as this one (ETFs), we are trying to make sure that we fulfil in a way that mandates financial inter-mediation. The product must be accessible and create opportunities that enhance more assets,” he said.

An ETF can make it easier for more people including those that may not have an understanding of how these markets work.

An investor can choose when to come in and when to come out.

Matsekete said the launch of the ETF was a step in the continued development of the Zimbabwe capital markets.

“This was an easy one to start with on our part. We wish to stay in that space.

So, it’s an innovation as well. Time changes very fast. The markets are looking for easier ways, cheaper ways to achieve their aspiration,” he said.

Old Mutual will put initial seed capital in the form of scrip in the exact weights of the top 10 index.

And additional investments from other investors will be used to buy shares on the market and add to the portfolio.

The ETFs will track the ZSE Top 10 counters, which will be defined from time to time by the ZSE, which reviews the counters once a quarter,” he said.

According to official data obtained from the ZSE, Top 10 counters at the end of the quarter to September 30, 2020, were CBZ Holdings, Delta Corporation, Cassava Smartech Zimbabwe, Innscor Africa, FBC Holdings, Econet Wireless Zimbabwe, Padenga Holdings, Rainbow Tourism Group, OK Zimbabwe and SeedCo Limited.

This means investors will be offered an opportunity to own 10 underlying stocks in one investment in the ETF. The ETF is some form of a derivative because it derives its value from underlying assets.

Investors who wish to invest in the fund can do so through two ways, by buying units in the ETF through any registered stockbroker or alternatively investing in kind by delivering a basket of stocks in the exact weights of the fund through an authorised participant.

The fund manager, Old Mutual Investment Group Zimbabwe, will be responsible for periodically replicating the ZSE Top 10 index in line with the index ground rules.

The difference between ETFs and traditional stocks on the ZSE will be that ETF trades a basket of securities, the Top 10, while shares trade a single company.

Globally, the market for ETFs has grown dramatically in the past 10 years.

What makes ETFs attractive is that they are relatively cost efficient because these are relatively passive funds which attract lower fees as compared to traditional managed funds.

ETFs are also said to be transparent given that the underlying assets are fully disclosed to investors in their proportions.

The ETF idea was conceived in 2018, according to Matsekete and the financial services group needed the appropriate legislation to be in place. It was worked through from late 2019 to the first quarter of 2020, paving the way for Old Mutual to launch and list the offering.

Experts said ETFs offer plenty of upsides like tax efficient, transparent, and cheaper when compared to other asset classes.

But, like other assets, experts who spoke to Business Times this week warned that ETFs were not entirely immune to market risks as well as they would be subjected to the downward movement in the prices of the underlying securities.

Since they are only a wrapper for their underlying investments, this means they can entirely avoid the fate of the market they track.

This means that while they provide numerous advantages that can help investors mitigate risks nothing will stop them from going down if their underlying assets are falling.

However, losses in one stock are likely to be mitigated by some gains in other stocks from the same basket of counters being tracked by the ETF.

Finance Minister Mthuli Ncube said efforts by the Securities Commission of Zimbabwe, the ZSE, Old Mutual Group, the Insurance and Pensions Commission, the Zimbabwe Association of Pension Funds, brokers, who worked hard to ensure that the ETF are listed, were “not in vain”.

“It is in line with the National Development Strategy objective of giving opportunities to investors to deepen the savings pool and to drive innovation. This is also in line with the vision articulated by the Zimbabwe Stock Exchange to promote investments and develop new products,” Ncube said.

Early this year, Treasury gazetted SI240 of 2019, widening the basket of instruments from which investors can choose from. – Business Times