The Sunday Mail
Tawanda Musarurwa
With demand for Exchange Traded Funds (ETFs) rising exponentially at the global level, the introduction of ETFs in Zimbabwe is expected to give institutional investors such as insurers and pension funds a better way of investing their monies.
It is estimated that global investment into ETFs for the six-month period between January and June 2021, matched investments made into the securities the entirety of last year.
The emergence of ETFs in Zimbabwe came as some local investment managers have been failing to meet their benchmarks while investing on the local bourse.
Earlier in January, the Old Mutual ETF – the first such financial instrument in the country — was listed on the Zimbabwe Stock Exchange (ZSE), with a debut day market capitalisation cap of $80,176 million. It closed the month of January with a market capitalisation of $111,2 million. Between January and June 2021, figures from the ZSE show that the Old Mutual ETF’s market capitalisation rose from $111,2 million to $257 million, a 131 percent increase over the six months.
And the numbers reflect a largely incremental trend.
The ETF’s market capitalisation grew from $111,2 million at the end of January to $175,2 million in February and $253,3 million in March, but slipped in April to $229,9 million. The positive trend was back in May, when the ETF’s market capitalisation rose to $277,8 million, and closed June lower at $257 million.
Actuary Gandy Gandidzanwa, has highlighted a number of key benefits for institutional investors.
“Exchange Traded Funds are ideal for pension funds who do not want the hassle of picking active asset managers in the hope that they will be able to generate above benchmark returns to compensate for the high fees they charge.
“ETFs can keep costs ultra-low, and while they will not beat the market benchmark, neither will they fall far behind it. They are for the boards that believe slow-and-steady investing wins the race.
“In an industry where investment performance is what investors are promised, and may or may not get at the end, while price is what they certainly agree to pay at the beginning, ETFs provide the sweet spot by not promising any outperformance at all and correspondingly not burdening investors with hefty fees,” he said.
An ETF is a type of security that involves a collection of securities that often tracks an underlying index.
The Old Mutual ETF is based on the bourse’s top 10 Index.
Added Mr Gandidzanwa: “ETFs, like any other form of passive investing, remove the emotional element of gaining exposure to the underlying market. They also enable trustees to gain broad access to market sentiment.
“This reduces volatility of returns as ETFs are generally spread across various sectors, increasing diversification – thus reducing share sector and selection risk,” he said.
“Research has shown that 90 percent of the total returns of a portfolio are from asset allocation. Passive investing thus allows trustees to invest more time and resources into what matters most – asset allocation decisions. It also focuses trustees’ attention more on optimisation of long-term performance.”
Following the introduction of the United States dollar-denominated Victoria Falls Stock Exchange (VFEX) last year, there also opportunities for players to launch US dollar denominated ETFs on the new bourse.
Finance and Economic Development Minister Mthuli Ncube recently said local players can consider launching ETFs on the VFEX underpinned by foreign indices, for example.
Presently, local insurance firms and pension funds are able to invest in US dollar-denominated assets in the country, following the promulgation of Statutory Instrument 280 of 2020. Such investments include, but are not limited to, equity investments on the VFEX and some private equity investments.
