Second ETF enters local market

MBONGENI MGUNI
Staff Writer | Friday November 12, 2010 00:00

 

In July, Absa Capital listed the BSE's inaugural ETF, marking a milestone in the local bourse's development and the expansion of asset classes in the country. Absa's gold ETF is presently a hit with investors as the gold price recently broke through US$1, 400 (P8, 960) per ounce.

With the ground laid, Nedbank is hoping the BettaBeta ETF will prove popular with local retail and institutional investors, all of whom are eager for investment opportunities, particularly the low-cost, flexible type provided by ETFs.

As with the gold ETF, the BettaBeta ETF will be a secondary listing on the BSE, being already listed on the Johannesburg Stock Exchange (JSE).

On Wednesday, Nedbank Capital's Head of Beta Solutions, Nerina Visser, told journalists the ETF was an instrument exactly replicating the FTSE/JSE Equally Weighted Top 40 Index.

The Index, on which the ETF is based, consists of the 40 largest and most prominent companies listed on the JSE Securities Exchange. The list of blue chip companies is re-assessed every quarter to make sure that it is always reflective of the 'best of the best.'

For the ETF, the Index is equally weighted as opposed to conventional indices constructed according to the market values of the companies within the index. The equal weighting, experts say, gives investors better access to all stocks in a particular segment.

If there is strength across a segment, products tracking equal weighting indices tend to outperform, and these types of products also reduce the risk from sudden drops in share prices of large capitalised companies.

At present, the JSE has both equally weighted and market cap weighted Top 40 indices. While the returns between the two are similar, the risk calculation favours the equally weighted index.

'The BettaBeta Equally Weighted Top 40 ETF allows investors to get exposure to equity indices or even fixed income and commodity indices via a single listed shares or units,' Visser said.

'The ETF is listed and traded on exchanges like shares and it complies with all the regulations providing guidelines for exposure, portfolio structure, compliance and reporting.'

Pointing out the ETF's comparative advantages, Visser said the BettaBeta was a more cost-effective option than investing in 40 individual shares, particularly if the investment amount is relatively small.

The Nedbank Capital executive revealed that the BettaBeta ETF, listed on the JSE in March 2010, has been the best-performing asset Top 40-based ETF on the JSE with a 17.6 percent return per annum, including reinvestment of dividends.

She said the performance in Pula was equal to 12.6 percent annualised, while 89 percent of ETF shares in issue were being traded. Other advantages for the ETF, Visser said, include reduced concentration risk and the fact that its performance is based on simple arithmetic averaging.Nedbank Capital officials expect the BettaBeta ETF to provide increased and diversified sector exposure to investors in Botswana. While at present most investment assets are in financials, the new ETF will offer exposure to sectors such as communications, technology, energy, basic materials, industrial and consumer. Pending necessary regulatory approvals, the ETF's drivers hope to list it on the BSE in the first quarter of next year, having marketed it and floated an initial public offer in November.