The Exchange Traded Funds (ETFs) market on the Nigerian Exchange (NGX) Limited grew by N12.646 billion in 11 months of 2023.
ETFs are amongst the fastest growing asset classes in Nigeria and are classified as Collectives Scheme. The Funds are a more recent asset class in Nigeria and are securities that track the performance of an index or basket of assets. There are about 12 listed ETFs on the NGX as at December 10, 2023.
NGX is the leading ETFs market in West Africa and one of the largest in Africa in terms of its listed products, turnover value and market capitalization. ETFs market capitalization rose by N12.646 billion from N8.419 billion it closed on December 30, 2022 to N21.065 billion on November 30, 2023.
Although, the ETFs market in Nigeria is still relatively small compared to other global markets. However, it has been growing steadily, with more ETFs being introduced and trading volumes increasing.
ETFs is a type of investment fund and exchange traded product that tracks the performance of an index or a ‘basket’ of securities (such as shares, bonds, commodities). ETFs are listed on a stock exchange and trade much like stocks, they provide investors with the opportunity to diversify their investments at relatively lower costs and gain exposure to different asset classes and strategies. With ETFs, investors can track global, country-specific and asset-specific indices.
The NGX in collaboration with key capital market stakeholders recently organised a workshop to address the major challenges and opportunities in the Exchange Traded Funds (ETFs) market.
The chief executive officer of NGX, Mr. Temi Popoola the Exchange said the EGX is leading the ETFs market in West Africa with a market capitalisation, noting that the market is still in its nascent state, compared to the South African ETFs market with a $7.11bn capitalisation.
Also speaking at the event was the executive commissioner, Operations, Securities and Exchanges Commission (SEC), Mr. Dayo Obisan, urged all stakeholders including the Fund Managers Association, NGX, and other institutional investors to extend the message of ETFs in order to deepen the market and make the asset class more vibrant, thereby driving growth in the capital market.
The chief operating officer of InvestData Consulting Limited, Mr. Ambrose Omordion said, with the growing demand for cost-effective, low-risk, diversified and income-generating investment instruments, the ETFs have been identified as a viable investment option for investors, particularly younger players who are new to the capital market.
He said that “transactions are still very low in this segment of the market. There is a need for more awareness and education to the investing public.”
Speaking on it, the vice president of HighCap Securities Limited, Mr. David Adonri said that noted that ETFs are inherently designed to give investors access to a wide range of viable assets.
He stated, “by investing in ETFs, investors are free from the rigors that come with trading in equities including stock valuation, screening, selection, and liquidity risk.
“This makes ETFs a more cost-effective investment solution. In addition, ETFs serve as a bespoke product for investors who want to add a tinge of innovation to their investment portfolios.”
“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.
“Essentially, an ETF is meant to reduce unsystematic 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.”