NEWGOLD ETF

Investors yet to embrace gold-backed security at the NSE

An ETF is a type of fund that owns assets like stocks, commodities, or futures, but has its ownership divided into shares

In Summary

•The promoters, Absa Group purchased, insured and stored pure gold bullion in custodian vaults in London

•Kenya was allocated 400,000 units worth Sh500 million to be traded at the Nairobi bourse

Gold bars
Gold bars

Nearly three years down the line, investors are not scrambling for gold at the Nairobi Bourse.

The Barclays NewGold ETF, the only listed Exchange Traded Fund at the Nairobi Securities Exchange has only sold 12,600 units worth Sh15.8 million since it was listed on March 27, 2017.

An ETF is a type of fund that owns assets like stocks, commodities, or futures, but has its ownership divided into shares (or units) that trade on stock exchanges.

The gold-backed security was part of the market strategy to diversify options for investors from equities and bonds but investors are yet to embrace the new product.

The promoters, Absa Group purchased, insured and stored pure gold bullion in custodian vaults in London.

The units were initially listed on the Johannesburg Stock Exchange and later on cross-listed in Botswana, Mauritius, Namibia, Ghana, and Kenya.

Kenya was allocated 400,000 units worth Sh500 million to be traded at the Nairobi bourse.

Financial analyst Mihr Thakar told the Star, slow uptake of the ETF was due to poor ease of access for investors.

“If an investor can buy a lot of gold (CFD) against the dollar with a regulated forex broker on a platform like MT4, it is hard to convince them to get exposure to gold through an instrument which they barely know how they can have enough demand to sell,” he said.

He added that the NSE needed to offer a trading platform website and engage the services of a liquidity player for some of its more innovative offerings such as the gold ETF and derivatives.

“Investors want to see volumes and price changes, and if not necessarily the latter, at least the former is crucial to attract institutional participation,” he said.

This was reiterated by financial analyst Aly Khan Satchu who added that Barclays and the NSE needed to do some more sensitization on the investment channel.

“Gold belongs in most portfolios in these uncertain times and I am certain there is plenty of latent hedging type demand that the ETF can tap into,” he said.

He said the product needs pared-down costs in order to attract more trading and investors. 

NSE managing director Geoffrey Odundo told the Star that the key reason for low uptake was a lack of awareness.

“The price is also a contributor because it is restrictive and requires an investor to buy a share at a minimum price which is currently approximately Sh151,000,” he said.

He, however, said the Nairobi bourse was in talks with potential issuers of bond and index ETFs as well as increasing market sensitization to boost uptake.

“The NSE is currently talking to potential issuers of Bond ETF and Index ETF and is also working towards deepening the market and sensitization of the product to investors,” he said.

The ETF’s unit value has grown 16.86 per cent since it started trading at the bourse from Sh1,275 to Sh1,490 as at yesterday’s closing bell.