In this interview, managing director of Highcap Securities Limited, Mr David Adonri speak on ETF
Can you tell us what is Exchange Traded Funds?
Exchange Traded Fund (ETF) is an investment fund or collective investment scheme which pools money from the investing public. The pool of funds from a scheme is used to collectively purchase asset(s) in which each investor own units. ETFs are created from an underlying asset like gold or a basket of underlying securities designed to track an index. The funds have the same value as that of the underlying assets.
ETFs are open-end funds, which means, they create and redeem units after they are initially issued. They issue new units as investors buy and retire units as investors sell or redeem.
What are the types of ETFs traded on the Nigerian Exchange (NGX) Limited?
Two main types of ETFs are traded on NGX. They are commodity backed ETF like ABSA New Gold ETF and Index backed ETF like the Vetiva funds.
How is the Funds traded and is it for all classes of investors?
As a collective investment fund, it is designed to meet the investment diversification needs of retail investors who lack investment management capacity and large funds, also for other high net worth investors who have no time to manage their portfolios.
What are the opportunities in the ETFs market?
ETFs are profitable investment outlets. They are tools for diversification of investment portfolios. Investors also benefit from economies of scale due to lower transaction cost enjoyed by funds.
What are the risks to investments in the Funds?
Essentially, ETF is meant to reduce nonsystematic risk associated with over concentration of investment because of diversification. However, they are still subject to systemic risk. If created from a commodity, it carries the risk borne by the asset.
What is the minimum amount for investment in the Funds?
The minimum amount required to be invested varies and it depends on the price per unit of the fund. Generally, a ‘lot’ of 100 units is standard for minimum purchase.
What are the prospects of the Fund in the Nigerian capital market?
The ETF sector of the Nigerian Capital Market has been growing in leaps and bounds since the introduction of ABSA New Gold several years ago. It continues to attract various categories of investors whose goals are satisfied by ETFs. The prospects for ETFs remain very bright.
The awareness of the Fund is low, what can be done in boosting the awareness?
Public enlightenment on availability and benefits of ETFs is a shared responsibility between Market Operators, Regulators and the Financial Press. It is a task that is begging to be done.