Old Mutual Zimbabwe yesterday launched the Old Mutual Zimbabwe Stock Exchange Top 10 Index Exchange Traded Fund. It’s quite a mouthful but it is not as intimidating as it sounds. The ZSE Chairman Justin Bgoni had promised fireworks in 2020 on the ZSE with the introduction of derivatives, the Victoria Falls Stock Exchange, the receivables exchange, Exchange Traded funds and Real estate Investment Trusts. After COVID-19 brought the entire nation to almost complete halt progress on these initiatives has been slow with only the Zimbabwe receivables exchange and the damp squib that has been the Victoria Falls Stock Exchange coming to fruition. The ETF will commence trade on the 4th of January 2021.
Earlier in the year, we wrote about ETFs to explain how they work. Just as a short recap an ETF is a fund which passively managed. In this case, our ETF mirrors the ZSE top ten companies index. The term exchange-traded refers to the fact that unlike other investment funds, ETFs “shares” are bought and sold on an open market. This greatly improves the ease of exit and entry compared to Mutual funds and index funds. So the ETF will track the index and have its own trading price. The top 10 index ETF will be updated quarterly.
ETFs are attractive for several reasons and the composition of the Top 10 Index can easily Illustrate this for us. In the year 2020 the ZSE All Share index has returned 587.65% year to date. That’s wonderful and a figure quoted by many when extolling the virtues of investing on the ZSE. However, you and I know that you cannot easily invest in the All-Share index. The Top 10 index has a year to date return of 381.40%. While this is lower than the All Share Index it is a higher return than 8 of the (now) 52 counters on the ZSE. So if you bought only 1 company’s shares and did so at random your chances of making a lower return than the Top 10 index are 15%. Too high if you’re playing with risk capital. To hammer the point home the ZSE Medium Cap Index (Medium-sized companies) has a year to date return of 1164.73% and again picking shares at random your chances of beating the Medium Cap Index would be 12 out of 52 or 23%. All this to say, for the beginner to the average investor an ETF or Index fund significantly increase the odds of successful investing.
The Top 10
The top 10 counters index is selected based on market capitalisation which in simple terms is the total value of the shares available on the exchange. The current top 10 companies by market capitalisation are CBZ, Delta Beverages, Econet, Innscor, FBC Bank, Padenga holdings, OK Zimbabwe, Cassava, SeedCo Limited and the Rainbow Tourism Group. British American Tobacco though being in the Top 10 is excluded. We will be able to discern why when the prospectus becomes available to us.
With the prospectus being made available to the finance minister yesterday all is set for trading in January. It’s good to see visions being delivered on in Zimbabwe and more coming in the pipeline. Real Estate Investment Trusts were given detailed tax rules in the recently presented budget giving us an idea of the detail of them and how they will give advantages of traditional real estate or real estate shares. We have been promised more ETFs in the pipeline.