Exchange Traded Fund (ETF)
An EFT is a bundle of financial securities that is traded on a stock exchange. This allows an investor invest in a portfolio of different asset classes(equity stocks, bonds and commodities) therefore lowering the level of risk and exposure.
How do ETFs work?
Exchange traded funds work like this: The fund provider owns the underlying assets, designs a fund to track their performance and then sells shares in that fund to investors. Shareholders own a portion of an ETF, but they don’t own the underlying assets in the fund. Even so, investors in an ETF that tracks a stock index may get lump dividend payments, or reinvestments, for the stocks that make up the index.
While ETFs are designed to track the value of an underlying asset or index — be it a commodity like gold or a basket of stocks such as the S&P 500 — they trade at market-determined prices that usually differ from that asset. What’s more, because of things like expenses, longer-term returns for an ETF will vary from those of its underlying asset.((Source : nerdwallet))
ETFs in Kenya.
Regulation of the Product.
The Exchange Traded Funds Policy Guidance Note was published by the Capital Markets
Authority (CMA) on October 1,2015 to allow the introduction of ETFs in Kenya. It
formed the basis of the regulations for ETFs listed on the NSE. Their issuance, listing and
trading on the NSE is overseen by the CMA and the NSE’s Regulatory Department. Under
the Policy, domestic and cross listed ETFs, must comply with internationally accepted
principles of issuance and trading of ETFs.
Exchange Traded Funds (ETFs) are listed investment products that track the performance
of a basket of Shares, Bonds or Commodities. An ETF can also track a single commodity
such as oil or a precious metal like gold. ETFs give investors the chance to buy units that
track whole indices as easily as buying shares listed on the Nairobi Securities Exchange
Current Issuances in the market.
- Issuer :Absa Group.
- Name: Absa Gold Backed.
- Type of ETF: Commodity ETF.
- Listing date :2016.
Description (ABSA Website).
The Barclays NewGold ETF is the product of NewGold Issuer (RF) Limited (the issuer) and its authorized representative or market maker in Kenya is the Barclays Financial Services Limited (BFSL), the stock brokerage subsidiary of Barclays Bank of Kenya.
The NewGold ETF was first listed in South Africa in 2004 as the 3rd gold ETF in the world. The first gold ETF was launched in the US in 2003. NewGold ETF has since been successfully launched in Botswana (2010), Nigeria (2011), Ghana (2012), Mauritius (2013) and Namibia (2014).
About NewGold ETF
NewGold is an Exchange Traded Fund listed on the JSE which enables investors to invest in a Gold Bullion debenture, the value of which tracks the price of the price of gold. The NewGold ETF derives its name from NewGold Issuer (RF) Limited –an entity that was launched by Absa Capital and managed by NewGold Manager (Pty) Ltd. It was formed 12 years ago and is housed at Absa Tower West, South Africa.
The Barclays NewGold ETF will trade in the same manner as a normal equity security and wilel be subject to the similar tax treatment. Disposals of the Gold Bullion Debentures will not attract capital gains tax in Kenya, in line with the treatment accorded listed instruments. ETF’s are based on the real time value of the underlying asset they track. The NewGold ETF will be Kenya Shillings (lings (ent. Disposals of NewGold ETF price will be based on the KES equivalent of the prevailing international market price of gold (in USD).
Price movement of the ETF will be determined by the price movement of gold. There will accordingly be no intra-day price limit on the ETF and there will not be price limits between trading sessions. Each security references approximately 1/100 troy ounces of Gold Bullion.
The allocated gold held as security has to be of SA origin, meaning it falls under SA Reserve Bank regulations. Gold is transported to London and held in safe custody by the NewGold’s custodian, ICBC Standard Bank. The gold is insured, allocated and cannot be lent out. The physical gold is independently audited by NewGold’s auditors.
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