Exchange traded funds arrive in east Africa

Barclays Bank on Monday launched the first exchange traded fund in east Africa when it listed the Barclays NewGold ETF on the Nairobi stock exchange.

The product is a cross-listing of the $1.4bn NewGold ETF that sits on the Johannesburg Stock Exchange in 2004 and is also publicly traded on five other African markets. Its initial size in Kenya will be Ks500m ($4.8m) with capacity for expanding if there is sufficient demand.

It will be the first time Kenyan investors will have local currency exposure to the spot price of gold, making it attractive to local pension funds and other institutions that are restricted in the amount they can invest overseas. It will also reduce currency risk for those wanting to buy gold.

ETFs are traded like normal equities and their price varies depending on the price of the underlying asset. Each NewGold security is equivalent to approximately one one-hundredth of an ounce of gold and is backed by physical gold.

Anthony Kirui, the head of markets at Barclays Kenya, was optimistic about the product’s prospects. “It’s the only ETF in east Africa and it’s going to help market players to diversify their investment risks,” he said.

Aly-Khan Satchu, an investment adviser in Nairobi, agreed, and said Barclays was “pushing at an open door” by launching a gold-based ETF. “There’s clearly demand for gold here because people see it as a store of value,” he said.

The Nairobi all-share index hit a 47-month low on March 8, driven down by a sell-off in Safaricom, the country’s dominant mobile telecom operator, and bank stocks. It has since recovered 9.2 per cent but is still 2.1 per cent down this year.

Geoffrey Odundo, chief executive of the Nairobi Securities Exchange, said he expected this to be the first of many ETFs to list on the exchange. “We expect them to be popular because they allow investors to spread their risk, diversify their portfolio and have ease of purchase and exit.”

The ETF launch will also serve as…

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