Nigeria’s exchange traded fund, ETF NGE, returns 21% year-to-date on equities rally

The Global X MSCI Nigeria ETF (NGE), which invests in among the largest and most liquid companies in Nigeria, has a year-to-date return of 21.07 percent as at close of business September 1, 2017, according to data gleaned by businesamlive.

An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course
of the trading day. Most ETFs track an index, such as a stock index or bond index.

It is therefore a pooled investment vehicle with shares that can be bought or sold throughout the day on a stock exchange at a market-determined price. It’s an investment that is built like a mutual fund but trades like an individual stock. The most common ETFs, like the Nigerian ETF, are designed to track the performance of a market benchmark, or “index.”

According to analysts the relative impressive performance of the fund is hugely influenced by the recent rally in the Nigerian equities market, which began in the second half of the year.

Specifically, the Nigerian stock market, which the fund invests in the largest and most liquid companies, gained traction in the second
half of the year, thanks to bargain hunting, positive earnings expectations and improved economic data.

The fund follows the MSCI All Nigeria Select 25/50 Index, holding 23 stocks in its basket with the top three firms dominating the portfolio with 44 percent of assets. Other securities hold no more than 5.02 percent
share.

From a sector look, financials takes the top spot with 51 percent share, closely followed by consumer staples at 37 percent.

Till date the ETF has amassed $66.6 million in its asset base and charges 68 bps in annual fees. It has added 13.8% so far in the second
half and has a Zacks ETF Rank #5 (Strong Sell) though with a high-risk outlook.

Available data indicate that the fund closed $21.23 Friday from a previous close of $21.48. The highest close for the year was August 9 at
$22.05.

The fund top 10 investments/holdings in the Nigeria equities market account for 76.16 percent of its total assets, with its Nigerian Breweries holding standing at 18.13 percent, followed by Guaranty Trust (15.5%), Zenith Bank (9.93%), Stanbic IBTC (4.88%), Dangote Cement (4.85%), Access (4.83%), UBA (4.70%), ETI (4.60%), FBN Holdings (4.49%) and Nestle (4.25%).

The ETF industry has attracted almost $2.8 trillion in new business since the start of 2008, coinciding with one of the longest bull runs in US stock market history. His comments come as regulators globally are examining the potential risks of the explosive growth in the low-cost ETF industry. Investors ploughed
nearly $400 billion into ETFs in the first seven months of 2017, according to ETFGI, a London-based consultancy.

The shift towards ETFs has been particularly powerful in the US, where assets stood at almost $2.8tn at the end of March, compared with the $16.9tn US mutual fund industry, according to the Investment Company Institute. A year earlier the numbers were $2.1tn and $15.7tn, respectively.

Bill McNabb, head of the $4.5 trillion asset management giant, Vanguard, has shot down accusations that record breaking inflows into
exchange traded funds were helping inflate a stock market bubble, according to Financial Times report weekend.

McNabb said index tracking funds, which includes the $4 trillion invested in ETFs, represent much less than 15 percent of the equity market capitalisation around the world. He added that index tracking funds accounted for less than 5 per cent of daily trading volumes of global financial markets.

“I don’t see the bubble,” McNabb said in an FT interview. “The data belie the fears.”

“I don’t think what is happening in ETFs is systemic,” said McNabb, who is stepping down as Vanguard’s chief executive at the end of the
year but will remain chairman. “The concerns are more specific and idiosyncratic.”

Traditional active asset managers, hedge funds and high-frequency traders accounted for the bulk of trading, McNabb said.