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NBAD Launches First ETF in GCC

ABU DHABI - The Arab world’s second largest bourse by market capitalisation, Abu Dhabi Securities Exchange, or ADX, has finally listed GCC’s first exchange traded fund issued by the National Bank of Abu Dhabi to track an index comprising nation’s 25-bluechip shares.

‘NBAD Oneshare Dow Jones UAE 25-ETF’, has been launched ahead of such an instrument planned to be launched in Kingdom of Saudi Arabia, next week, bringing laurels to Abu Dhabi which had long planned to expand its product-line.

ADX in collaboration with the Securities and Commodities Authorities created enabling infrastructure, rules, and systems and then marketed the idea around the world to get potential issuers.

There was considerable interest, and the first ETF was planned for last year but the financial crisis delayed it.

An index-tracking Exchange Traded Fund, or ETF, is a type of an open-ended investment fund that tracks a specific index, and is listed on a stock exchange.

At a briefing, the Chief Executive of ADX, Tom Healy, NBAD’s Chief Investment Officer, Alan Durrant, and Deputy CEO ADX, Rashid Al Baloushi, said that the fund would commence trading from today.

The bourse chief expected more such instruments to be launched on the market this year, as Abu Dhabi has jumped on the band wagon of nations who are benefiting from the tremendous opportunities offered by the low-cost and low-risk instrument.

Healy said that the fund allows investors to gain exposure to a wide range of asset classes, regions through a collective investment scheme which is traded like an equity share.

Alan Durant, NBAD’s CIO, said that his bank would be the market maker to the ETF which will have a face value of little over Dh5 a share.

NBAD will also be a swap counterparty and authorised participant, while to advance the objectives of transparency, The Bank of Ireland will act as the trustee, administrator and custodian of the issue, he said.

Minimum subscription will be $100,000. However, smaller investors can trade even with one share on secondary market.

The ETF share will be listed on one or more exchanges in the same way as ordinary shares, unlike in closed-ended funds which typically trade at a sizeable discount, the bid and offer prices will typically be close to the fund National Asset Value or NAV and i-NAV, he said.

The liquidity providers are monitored by the exchange and may be replaced at any time if the exchange deems they are not providing appropriate liquidity.

Investors are able to trade with the NBAD or directly with other investors.

Listing on the exchange provides an alternative to the redemption/subscription process and therefore significantly boosts the liquidity of the ETF shares.

The eligible investors can buy and sell shares directly through brokers.

The bank has contributed a seed money of $10 million to the ETF, said NBAD Chief Investment Officer, hoping it might become the most active instruments on the market whose daily transactions may exceed millions once market gets familiarised with it.

Steve Corrin, Business Development Director of Dow Jones Indexes, said among top ten blue chips included in the index is led by telecom giant Etisalat with nine per cent weight age. Other most liquid shares include First Gulf Bank, Emaar Properties; NBAD; Dubai Islamic Bank; Emirates NBD and investment firm Aabar, NASDAQ listed DP World, Al Dar Properties and Sorouh Real Estate.

“To be eligible for the index, securities must have a minimum average daily trading volume of $500,000,” said Alan. ETFs are one of the fastest growing products in the investment market; and according to Blackrock their assets exceeded $ 1 trillion by the end of 2009, up by 45.7 per cent from $ 711 billion a year ago.

haseeb@khaleejtimes.com