The trading year on the ZSE kicked off with a new and exciting prospect with the launch of the Morgan and Co Multi-Sector exchange-traded fund. The news of this had been brewing for a while now and it’s coming to the market should be seen as a moment of victory for the ZSE team and we should expect more to come. When the Old Mutual ZSE Top 10 Exchange Traded Fund (OMZSETTETF) was launched ZSE CEO Justin Bgoni remarked how Old Mutual also launched the first Unit Trust Funds in Zimbabwe and today we have many so we should expect the same in the ETF space.

Exchange-traded fund

We’ve looked at Exchange Traded Funds (ETFs) before but a quick recap wouldn’t hurt. They are pooled funds that are invested in a group of assets which is referred to as the benchmark. The fund ownership is split into many (usually) small units to allow ease of entry and exit for investors. These units are traded on an exchange the same way individual shares are traded on an exchange. Zimbabwe what I would say is a good introduction to ETFs with the OMZSETTETF at the start of 2021.

Morgan and Co Multi-Sector ETF

The Morgan and Co multi-sector ETF (MCMSETF) takes a slightly divergent approach to the OMZSETTETF. Where the OMZSETTETF is an index fund that tracks the top 10 index, the MCMSETF is a fund that will have its constituents decided by the asset managers. For this purpose, Morgan and Co will partner with TN Asset management to execute the changes in the investment benchmark where necessary.

Actively managed

Unlike the passive fund (fixed constituents) or index fund (constituents determined by the underlying benchmark index), the active fund constituents will be elected by Morgan and Co. If we look back to early 2021 the OMZSETTETF lagged behind many stocks in returns as did the entire top 10 index. There were high returns in the small-cap index early on. While the Top 10 index picked up in the 3rd and 4th quarters the small-cap index was unassailable. So an actively managed fund, in theory, would’ve been better suited to the conditions of 2021. The goal of an actively managed fund is to provide market-beating returns. This is not always easy in practice as we have seen through Unit Trusts where there are some actively managed funds.

Multiple sectors

The promoters of the MCMSETF point out it being a multi-sector is another key feature. This isn’t quite a clear cut and we will see this when we look at the constituents of the fund. The concept of exposure to multiple is in theory a great selling point but in practice, it may be a weakness depending on the sectors chosen. Of course, we expect the Financial Market Indaba Capital Market Award-winning institution of Morgan and Co to pick the best prospects available within the sectors.

Constituents

As we can see from the image the constituents of the MCMSETF at the outset will be Finsec listed Old Mutual Zimbabwe Limited, NMBZ Bank, First Mutual Holdings Limited, First Capital Bank and Zimre Holdings limited. Initially, the focus is on the Financial and Banking sectors. At first, the move seems a bit underwhelming but may prove to be a masterstroke. The Financial index was the poorest performing sector index in 2021 and it has a lot of room to grow and catch up with the rest of the exchange.

The MCMSETF traded positively in its first week of life. It was introduced at ZWL$10 per unit and swiftly rose and settled at ZWL$12.40 at the close of trading on  Friday 7th January 2022. That’s a very good start and I’m sure eyes will be on it to see how it fairs going forward.