There has been an influx of new investors on the Zimbabwe Stock exchange. We’ve seen an influx in our ZSE Stocks WhatsApp group and in general ZSE chatter across social media and amongst the people. The most frequent question I have seen asked (see our ZSE FAQs post here) by new investors is “what should I invest in”? There are many great companies with good prospects to invest in on the ZSE but this year the ZSE launched with an additional option that new investors should be casting their eye to; the Old Mutual ZSE Top 10 ETF (OMZSETTETF or ETF for short).
We’ve discussed ETFs in general and the OMZSETTETF in particular before but for a quick recap let’s look at Exchange Traded Funds (ETFs). An ETF is a pool of funds that invests in an underlying asset. This fund is traded on the stock exchange similar to the way shares are sold on the ZSE. What makes ETFs attractive is that the units are broken down to a small size that makes it easy for investors with smaller amounts of money to buy into the fund. In our case, the only ETF that is currently available is the OMZSETTETF which as the name suggest invests in the top 10 companies on the Zimbabwe Stock Exchange by market capitalisation (total value of all shares on the stock exchange). A single unit of the ETF traded for ZWL$1.8047 while the cheapest of the current top 10 shares is worth cassava Smarttech at ZWL$13,45. Owners of ETF units Receive all the rights of shareholders of benchmark shares save for voting rights. Capital appreciation and dividend flow both go to people holding the ETF. So ETF gets the benefits of the top 10 index without bearing the weight as we will see later.
The OMZSETTETF according to its prospectus launched with a basket of the following companies; CBZ, Delta Beverages, Econet, Innscor, FBC Bank, Padenga holdings, OK Zimbabwe, Cassava, SeedCo Limited and the Rainbow Tourism Group respectively. The top 10 does change from time to time as do the weights so the fund managers, Old Mutual, do update the portfolio the fund invests in. At the time of writing the top 10 is comprised of CBZ ($76.00), Delta ($40.00), Econet ($17.14), Innscor ($68.74), Cassava ($13.45), National Foods ($315.00) , Hippo Estates ($110.00), OK Zimbabwe ($14.78), FBC bank ($25.40) and BAT ($800.00). These are all desirable companies but as the prices in brackets show they are (relatively) expensive.
The ETF has many advantages it offers to investors;
You get access to the biggest and best companies in Zimbabwe and the stability that comes with them.
Low entry price
A single unit of the ETF is $1.80, whereas the cheapest of the top 10 is Cassava at $13.45. If we apply the minimum of 100 units to each you would need $180 (plus costs) to buy the ETF while you would need $1345 (plus costs) to buy 100 units of Cassava.
Track the index
As things currently stand on the ETF has outperformed 26 of the 50 counters on the ZSE. 7 of the counters it has outperformed are members of the top 10 index. Tracking an index spreads your risks.
Hard work is done for you
The other advantage of the ETF is that it is a managed fund. The fund manager makes changes when necessary. You can see that the top 10 list has changed since the prospectus was launched and again changed since the ETF started trading on 4 January 2021. If you were organising your own fund or managing your own portfolio which contained the top 10 the burden of selling off what is no longer in the top and buying what has come in would rest on your shoulders.
It’s not all roses and sunshine when dealing with ETFs. There are a few things you should be aware of.
As I pointed out the ETF has so far outperformed 26 of the 50 counters with a year to date return of 80.07% it follows that it has been outperformed by 24 counters out of the 50 which is ironic if not poetic.
The second disadvantage is not unique to ETFs but rather the whole market. This is money at risk and while we foresee growth in value the possibility of losing your money in a market crash is real but not probable. Given our ETF is made up of the top 10 counters, if they crash there is no hope for anyone.
How to buy
You can buy the ZSEOMTTETF through a registered stockbroker or the ZSE Direct platform.
Now that we have discussed all the details let me explain why I feel the OMZSETTETF should be the starting point for those new to the ZSE. What makes this ETF special is the benchmark it follows. These are the top 10 companies by size on the ZSE, the number of shares multiplied by the value of the shares. Theoretically, to get into the top 10 or rise higher either the share price, the number of shares or both would have to increase. In practice increasing the number of shares by most methods available would dilute the price and therefore not result in an increase. So really a price increase is the only way to rise into and in the top 10. Conversely falling out of the top 10 would happen as a result of the price decreasing. Decreasing the number of shares through available methods would likely increase in price. So if we eliminate the number of shares as a driver in both cases the Top 10 index rewards high performing shares. If a counter stops performing (in terms of capital gain) it is replaced in the top 10 by one that is.
Who should buy?
If you’re new to the ZSE then this is a definite buy. If you have some experience but still have trouble analysing and picking companies or timing your buys this is for you. If you have excess money but are not sure which companies to put it in, the ETF is definitely a buy for you. It allows you to learn more about companies while getting into the habit of investing as you start your journey.