The Nairobi Securities Exchange (NSE) is betting on the listing of funds to expand investor participation, even as the bourse closes in on its first initial public offering (IPO) in nearly 11 years –the Kenya Pipeline Company.
Officials of the NSE say funds including exchange traded funds (ETFs) and mutual funds can attract retail/individual investors by handing them a diversified portfolio over single stocks.
ETFs are listed investment products tracking the performance of a particular index or basket of shares, bonds, money market instruments or a single commodity while mutual funds describe pooled investor funds which build diversified portfolios.
The NSE has already listed two funds since its last IPO in 2015 including the Absa New Gold ETF and the Satrix MSCI World Feeder ETF.
“People invest in funds and ETFs over individual stocks because a single stock limits your exposure to just one company while listed funds give one a diversified portfolio,” said Irungu Waggema, the NSE chief officer for strategy, risk and compliance.
“As a retail investor, one does not need to think too much about making the investment decision.”
ETF’s give investors exposure to a wide variety of securities or assets, avoiding the risk of putting all of one's eggs in one basket.
Investors in ETFs are still eligible to receive dividends should the securities in the tracking index pay dividends.
The funds require a market maker in Kenya which creates liquidity through two-way quotes to eradicate substantial price gaps and ensure a liquid market for all investors.
The Absa New Gold ETF was the first listed fund on the NSE and offers investors at the bourse the chance to buy the listed 400,000 gold bullion debentures, each equivalent to 0.01 of an ounce of gold or 0.28 grammes.
The Satrix MSCI World Feeder ETF was listed on the NSE in July last year and provides investors with exposure to over 1,300 large and mid-cap companies across 23 markets having invested in the iShares Core MSCI World UCITS ETF.
The NSE 2025-2029 strategy envisions new listings of 50 funds on the bourse, in contrast with 40 listed companies, underlining the exchange’s bias for listed funds.
“This goal points to our intention to broaden our product offerings by including a variety of funds —such as mutual funds, exchange traded funds and other managed funds,” the NSE says in its strategy.
“We will focus on catering to various investor preferences, risk tolerances and investment objectives. Offering 50 diverse funds will attract a wider audience, including those interested in managed investment options.”
The NSE is on the verge of listing a third ETF, with venture capital fund Africa Eats expecting approval from the Capital Markets Authority (CMA) to list an exchange traded fund.
This fund will contain the firm and its portfolio companies which include Kenyan based Nyota, Chicken Basket and Boka Eats.
The Nairobi bourse is however yet to have locally founded funds tracking securities including equities listed on the NSE. The bourse has attributed the lack of local funds to restraint from potential issuers.
“EFTs and other funds are good opportunities, but Kenyans will generally not want to be the first ones to issue.”
