OM ETF regains lead over benchmark

THE Old Mutual (OM) Exchange Traded Fund (ETF) has gained 50 percent since the beginning of August, reclaiming a lead over its benchmark, the Zimbabwe Stock Exchange (ZSE) Top 10 Index, which is now 15 percentage points behind with year-to-date gains of 135 percent.

The ETF had been overtaken by the Top 10 in July when its year-to-date gains moved to 100 percent, which was 17 percentage points behind the benchmark.
ETFs are passively managed funds that track the performance of a specified security, which include but are not limited to indices, commodities and currencies.

Investors buy units of an ETF hoping to gain the returns of the underlying index, however, one of the major risk factors of such funds is that they rarely ever mimic the underlying security perfectly.

Old Mutual Investment Group Zimbabwe (OMIG), the sponsor of the ETF, says this gap ― which is called a tracking difference ― arises from a combination of management fees, tax treatment and dividend timing.

To minimise the tracking difference risk, OMIG says it uses a “full replication investment strategy”, where it buys all the underlying securities of the index in their exact proportions.
Since its listing in January, the country’s first ETF has outpaced its benchmark, for the most part. This means that while the fund exhibits a considerable tracking difference, this has largely played out in favour of investors so far.

Last December, OMIG initially put seed capital into the fund in the form of scrip weighted according to the ZSE top 10 Index.
Since then, additional investments from other investors have been used to buy shares on the market that have been added to the portfolio.
The fund was initially listed with 80 million units and at least 60 million more have been added.

Apart from investing in the fund by buying units in the ETF on the ZSE, OMIG says punters can also invest in kind by delivering a basket of stocks in the exact weights of the fund through an authorised participant.

The ZSE says the introduction and listing of the ETF was a significant milestone in its transformation into a world class exchange.
“We, however, need to work on reducing the transaction costs of ETFs,” chief executive Justin Bgoni said in the exchange’s 2020 annual report, which was published recently.
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