Exchange Traded Funds (ETFs) are professionally managed, pooled and listed investments funds.
The investment fund typically invests in a basket of shares, currencies, commodities or other securities and investors buy units from the fund, which units are listed on an exchange.
This makes an ETF a basic derivative as the value of the units issued by the investment fund are dependent on the value of the shares, currencies or other securities in the basket.
As part of efforts by the domestic bourse to offer wide investment choices to investors, the Zimbabwe Stock Exchange (ZSE) is set to introduce ETFs early 2020.
In preparation of the introduction of ETFs, the ZSE conducted training on 29 November 2019 to ensure that the public understand the basics of ETFs.
The training outlined the risks and benefits of this form of investment and how they are to be traded on the exchange.
The major benefits of ETFs being offered to the investing community include the following:
an increase in the number of available investment options.
ETFs will allow investors to get exposure to asset classes that are difficult to access directly, for instance commodities.
retail investors will also benefit from ETFs through the breaking down of large investments into smaller units that can then be bought and sold in the secondary market.
ETFs provide investors with the ability to gain exposure to a broad market in one transaction.
listed ETFs are safer as they are fully hedged by underlying assets.
ETFs are passive in nature therefore they tend to have low fee structure than the actively managed funds.
The investable indices are investor driven and issuers will be free to list ETFs focusing on different themes.
The ZSE is yet to introduce relevant indices to the market.
Some of the indices will be sector specific (e.g. consumer services and financial) and others will be size based (small, mid and large cap)