Alfalah to list exchange-traded fund on PSX on 17th – Journal
KARACHI: Alfalah GHP Investment Management Ltd will list its first exchange-traded fund (ETF) on the stock exchange on January 17, company CEO Nabeel Malik said in an interview with Dawn on Saturday.
Traded on an exchange like a common stock, ETFs allow investors to gain exposure to a basket of companies while combining the high returns of direct investment in stocks with the diversified base offered by mutual funds.
The ETF will track the Alfalah Consumer Index, which is a benchmark index made up of 20 stocks from seven sectors that happen to be the direct beneficiaries of growing consumer demand in the country.
This will be the sixth ETF to be traded on the Pakistan Stock Exchange (PSX). The most recent, JS Momentum Factor ETF, started trading on the PSX on January 7th.
CEO hopes Sharia-compliant product will attract all kinds of investors
âAlmost all of the ETFs launched so far have focused on index heavyweights. However, each of our economic growth spurts has been driven by consumer demand. Our age dynamic is very favorable, âsaid Mr. Malik. A few particular sectors of the economy experience substantial growth whenever the country’s GDP growth exceeds four percent, he added.
Consumer-focused sectors represented in the next ETF are Cement (four companies), Engineering (four companies), Textile Composites (four companies), Automotive assembly (two companies), Food and Personal Care personnel (two companies), oil and gas marketing. (two companies) and pharmaceutical (two companies).
The index will be rebalanced every six months to include the top companies with the highest free float market capitalization in each of the seven sectors. In addition, it will include stocks with an average daily one-year trading volume of 100,000 or more shares.
Investors will be able to buy and sell the basket of 20 companies in a batch of 500 units with a par value of Rs10 each.
Does the focus on consumer stocks mean investors will lose the index heavyweights of banking production and energy exploration companies, which have dominated the most investable space on the PSX since forever? ?
âWith the exception of banks, the heavyweights in the index don’t really have such a big impact on consumer-driven demand in the economy,â Malik said.
âBanks have a high market capitalization, which would have resulted in high weightings in the index. Second, we wanted a Sharia-compliant product to attract all kinds of investors, âhe added.
Previously listed ETFs have received a poor response from investors in terms of average daily volumes traded – a phenomenon Mr Malik attributes to a lack of awareness of the benefits of ETFs.
He said his company is actively working on another ETF whose underlying assets will primarily be Treasury bills and Pakistani investment bonds.
This will allow equity investors to divert their investments to fixed income securities as soon as they decide to reduce their exposure to the equity market for whatever reason. âThere is a lot more cash available in this segment,â he added.
Current regulations allow the total expense ratio (TER) – a measure of all the costs associated with managing and operating a fund – up to 2.5 percent. ETFs listed on the PSX have TERs of 2pc on average, which Malik acknowledged is above the global standard of 1pc or less.
âTERs will automatically decrease once the size of ETFs increases. Remember that billions of dollars are invested in ETFs around the world while the size of all local ETFs can reach 300 million rupees, âhe said.
Posted in Dawn, January 9, 2022