Kenya’s capital markets are set for a new investment product after the Capital Markets Authority (CMA) approved the listing of the Wallstreet Africa (WSA) Banking Index Exchange Traded Fund (ETF) on the Nairobi Securities Exchange (NSE).
The fund will be the first locally domiciled ETF to be listed on the NSE, increasing the total number of ETFs on the bourse to three and giving investors a new way of gaining exposure to the country’s listed banking sector.
The CMA Board approved the product in line with the Capital Markets Policy Guidance Note on Exchange Traded Funds, 2015.
The two other ETFs currently trading on the NSE are the Absa NewGold ETF, which follows the price of physical gold, and the Satrix MSCI World Feeder ETF, which provides exposure to large and mid-sized companies in developed global markets.
The WSA Banking Index ETF has been issued by Wallstreet Africa Group Limited, the company behind the Kenyan Wall Street and Wall Street Africa ecosystem. The firm has partnered with Tradiam Asset Managers Limited, which will manage the fund.
The new product is designed to give investors access to a range of listed banking companies through one investment, instead of buying shares in each bank separately.
The fund will operate as an open-ended scheme, with its units listed and traded on the NSE. It will seek to closely follow the performance of the NSE Banking Index by investing all its assets in the banking stocks that make up the index.
CMA Chief Executive Officer Wyckliffe Shamiah said the ETF supports the regulator’s push to introduce more innovative products into the capital markets.
“The rollout of the innovative ETF product by the Wallstreet Africa Group is aligned to the Authority's ambition of facilitating curation of innovative products in the capital markets space. This is expected to address the growing demand for innovative products, thereby allowing investors to diversify their portfolios and deepening the capital markets through an expanded scope of capital market products,” Shamiah said.
The NSE Banking Index brings together companies listed under the banking sector, including Equity Group, KCB Group, Co-operative Bank, Absa Bank Kenya, NCBA Group, Standard Chartered Bank Kenya, Stanbic Holdings, I&M Group, Diamond Trust Bank, HF Group and BK Group.
Investors in the ETF will therefore be exposed to the performance of the wider banking sector rather than relying on the fortunes of a single bank.
However, the value of the ETF units will change depending on movements in the market value of the banking shares held by the fund. Investors will consequently face risks linked to changes in equity prices, interest rates, the performance of the banks, regulatory changes and broader economic conditions.
The fund will be denominated in Kenya shillings, while the banking shares that make up its underlying portfolio are also traded in shillings on the NSE. Investors will therefore not face foreign exchange risks arising from the fund’s underlying investments.
The ETF units will be traded on the NSE, with liquidity potentially supported by appointed market makers or authorised participants.
These participants will help with the creation and redemption of ETF units while also supporting orderly trading of the product in the secondary market.
The approval comes as Kenya continues to expand the range of products available in its capital markets, giving investors more avenues to spread their investments and manage exposure across different assets.
Through the WSA Banking Index ETF, an investor will be able to gain exposure to several listed banks through a single product, rather than making separate investments in individual banking shares.