Rebecca Hampson 04 Jun 201
Africa is fast becoming a hotspot for the exchange-traded fund market, with South Africa in particular driving growth.The total value of the ETF market on South Africa’s national bourse, the Johannesburg Stock Exchange, grew 60% to R4.8bn ($622m) at the end of 2011 compared with the same period a year before.
Meanwhile, the number of ETF products listed on the exchange has also risen sharply, from 31 at the end of 2010 to 46 at the end of 2011, according to data from the JSE.
Such growth has prompted other national bourses on the continent to begin listing the products, or seek regulatory approval to do so, including those in Botswana, Nigeria, Ghana and Kenya.
Deborah Fuhr, managing partner at ETF consultancy ETFGI, said: “The growth in South Africa is driving the other African markets to enter into the ETF market. There have been more ETFs launched in Africa this year than in all of last year; it is truly booming.”
ETFs allow investors to simplify their investment portfolio strategies by giving them exposure to a specific sector or asset class and, notably, commodities. The African versions of the product appear to have appealed to a wide range of users, including private investors and institutions.
The authorities believe that the drive to promote ETFs and list them on national exchanges is a good way of attracting liquidity to the markets as a whole.
Damilola Ajayi, managing director at asset management house Vetiva Capital, said: “The introduction of ETFs has deepened African markets, especially in South Africa. For other markets, such as Nigeria, the recent introduction of ETFs has served to broaden the asset classes available to investors.”
Vetiva Capital launched its NewGold ETF in Nigeria last December. The product has seen its assets under management, based on investor inflows, grow nearly 45,000% albeit from an extremely low base.
The ETF had just 2,526 Nigerian naira ($15.5) in assets when it launched in December and 1.14m naira ($7,010) in May this year. To put that in perspective, the average monthly salary in Nigeria is 18,000 naira ($112).
Ajayi said: “We have seen participation by local retail investors and, although still small, it is growing. As a relatively new asset class in Nigeria, market participants are still going through the expected “learning curve” as they become more comfortable with the new asset class.”
A wide array
The African ETF market is still young but already it comprises a wide array of products. The South African bank, Absa Capital, which has ETF assets under management of $5bn, has listed 10 new products this year, including five ETFs on government bonds and equities, and five exchange-traded notes on silver, platinum, and currencies.
Despite the success and growth in the market, the process of listing an ETF on the continent is not without its difficulties.
The Ghanaian and Kenyan stock exchanges are awaiting approval from their regulators to list the products, with Ghana having already waited for 10 months.
Ekow Afedzie, deputy managing director of the Ghana Stock Exchange, told Financial News that he had hoped the Newgold ETF would begin trading on the exchange in September, pending approval from the Ghanaian regulator.
He said: “We are keen for other companies wishing to list their ETFs on the market to do it with us as it means more liquidity for our market.”
It would seem, however, that the wait is worthwhile, as ETFs are credited with helping drive recent inflows into the broader African fund markets.
Since listing the NewGold ETF in Botswana, pension fund managers have invested 151.9m Botswanan pulas ($19.5m) in the ETF, in an effort to benefit from the rising price of gold, according to Absa Capital.
The product has also become one of the best-performing ETFs in South Africa over the past five years, according to research from Nigerian-based financial services house, Meristem, which noted that it has a one-year return of 41.60%, a two-year return of 28.50% and a return over three years of 12.73%.
According to Vladimir Nedeljkovic, head of investments at Absa Capital, investors are beginning to realise that ETFs represent an excellent way to gain exposure to markets, sectors and asset classes globally.
The next step in the South African market is to attract investment into other asset classes. With the exception of the NewGold ETF, the largest portion of assets under management in South African ETFs is in equities.
Nedeljkovic said: “Investors, both retail and institutional, now realise that ETFs represent the most practical, simple and cost effective way to gain exposure to markets.
There is now a need for more money market, fixed-income and multi-asset products, and we have been active in bringing such products to the market.”
46 – ETFs listed since 2000 in South Africa (Johannesburg Stock Exchange)
1 – listed in 2010 in Botswana
1 – listed in 2011 in Nigeria
1 – pending approval in Ghana