The Capital Markets Authority (CMA) has approved the listing of the WSA Banking Index Exchange Traded Fund (ETF) on the Nairobi Securities Exchange (NSE), giving investors access to a single listed product tracking 11 banking institutions.
The approval means investors will be able to gain exposure to a portfolio of listed banking shares through units of one ETF rather than purchasing shares in each constituent company separately.
The WSA Banking ETF is the first locally domiciled ETF to be listed on the NSE and brings the total number of ETFs on the exchange to three.
The product is issued by Wallstreet Africa Group Limited, the company behind the Kenyan Wall Street and the Wall Street Africa ecosystem, in partnership with Tradiam Asset Managers Limited, which will serve as the fund manager.
One Investment Gives Exposure to 11 Banks
For investors, one of the main implications of the approval is access to a basket of banking stocks through a single investment.
The WSA Banking Index ETF will seek to replicate the performance of the NSE Banking Index by investing its assets in the constituent banking sector shares that make up the index. The 11 institutions are:
- Equity Group Holdings Plc
- KCB Group Plc
- The Co-operative Bank of Kenya Ltd
- Absa Bank Kenya Plc
- NCBA Group Plc
- Standard Chartered Bank Kenya Ltd
- Stanbic Holdings Plc
- I&M Group Plc
- Diamond Trust Bank Kenya Ltd
- HF Group Plc
- BK Group Plc
The fund will invest in the free-float shares of these companies. This means an investor buying units in the ETF will obtain exposure to the performance of the banking sector through the pooled fund rather than directly holding individual shares in each of the 11 companies.
Investors Can Trade the ETF on the NSE
The WSA Banking Index ETF will be structured as an open-ended scheme whose units are listed and traded on the NSE. Investors will therefore be able to buy and sell the ETF units through the securities exchange.
The ETF’s secondary-market liquidity may be supported by appointed Market Makers or Authorised Participants. These participants facilitate the creation and redemption of ETF units and help maintain orderly trading.
The approval therefore adds another exchange-traded investment instrument through which investors can obtain exposure to Kenyan listed equities.
The ETF Will Be Denominated in Kenya Shillings
The WSA Banking Index ETF will be denominated in Kenya Shillings, while its underlying banking shares are also listed and traded in Kenya Shillings on the NSE.
According to the information provided, investors will therefore not face foreign exchange risks arising from the fund’s underlying investments. The investment exposure remains tied to the performance of the Kenyan banking shares held by the fund.
Investors Get Sector Diversification through One Product
The structure of the ETF allows investors to spread their exposure across multiple banking institutions through one investment.
Instead of relying on the performance of one bank, the ETF tracks an index made up of 11 banking-sector companies. The performance of the ETF will therefore depend on the combined performance and market values of the constituent shares.
The value of individual banks within the index can change at different rates, meaning the ETF’s overall value will be affected by movements across its underlying portfolio.
The ETF Will Follow the NSE Banking Index
The WSA Banking Index ETF is designed as an index-tracking product. It will seek to replicate, as closely as practicable, the performance of the designated NSE Banking Index by investing in the shares that comprise the index.
For investors, this means the ETF’s performance is linked to the underlying index rather than being based on a fund manager selecting individual banking stocks outside the index. As the market value of the underlying banking shares changes, the value of the ETF units can also change.
Investors Remain Exposed to Banking Sector Risks
The CMA approval does not remove the investment risks associated with the underlying banking shares. The value of the ETF units will fluctuate in line with changes in the market value of the banking sector equities held by the fund.
The ETF may be affected by equity market volatility, interest rate movements, changes in the operating performance of constituent banks, regulatory developments and macroeconomic conditions. Investors therefore remain exposed to movements in the Kenyan banking sector through the ETF.
The Product Adds Another Investment Option on the NSE
The WSA Banking Index ETF increases the number of ETFs listed on the NSE to three. The other two are the Absa NewGold ETF, which tracks the price of physical gold, and the Satrix MSCI World Feeder ETF, which tracks large and mid-cap global equities across developed markets.
The WSA Banking Index ETF differs from the two existing products by providing exposure to locally listed banking sector equities.
For investors, the approval therefore adds a locally focused ETF to the range of exchange-traded products available on the Kenyan capital market.