What Is an ETF?
Instead of buying one bowl of soup, an ETF lets you buy a small spoonful from thirty pots at once. You make one purchase, and it gives you a slice of every investment the fund holds. If some of those companies do badly and others do well, the results average out — which is the whole point.
Exchange-Traded Fund (ETF). An exchange-traded fund (ETF) is an investment fund that holds a basket of assets — shares, bonds or a commodity such as gold — and whose units are bought and sold on a stock exchange in the same way as an ordinary share.
How an ETF works
A fund manager builds a portfolio designed to follow a published index or theme — for example, the thirty largest companies on the NGX. The fund is divided into units, and those units are listed on the Nigerian Exchange. You buy and sell them through a stockbroker during trading hours, exactly as you would a share, and they are held in your CSCS account under your CHN. The price of a unit moves with the value of everything the fund owns.
What ETFs are available on the NGX
The NGX lists a range of ETFs. Some follow Nigerian equity indices, such as the Stanbic IBTC ETF 30, which tracks the NGX 30 Index. Some focus on a sector, such as banking or consumer goods. Others hold something other than Nigerian shares altogether — NewGold, for example, tracks the price of gold. What an ETF holds, and therefore how it behaves, varies a great deal from one fund to the next.
What an ETF costs
You pay the usual brokerage charges when you buy and sell units, as with any listed security. The fund also takes an annual management fee, deducted from its assets, so you do not see it as a separate charge — it simply reduces the fund's return. The fund's prospectus and factsheet state this fee, and it is worth comparing between similar funds.
Two things to check before buying
First, how often the ETF actually trades. Some NGX-listed ETFs change hands rarely, which can make it slow to sell at a fair price and can leave the market price some distance from the value of the fund's holdings. Second, what the fund really owns. Read its factsheet: an ETF named after a sector may be concentrated in a handful of companies, and one that tracks a commodity or foreign asset carries currency risk as well as market risk.
ETFs versus buying shares directly
An ETF spreads your money across many holdings in a single purchase, which reduces the damage any one company can do, but you own units in a fund rather than shares in each company, and you pay the fund's annual fee. Buying shares directly means you choose each company, own the shares in your own name, and receive dividends straight from each registrar, but you take on the work of spreading your money yourself. Many investors hold both.
Questions
About exchange-traded fund (etf)
This page is for general information and educational purposes only. It does not constitute financial advice, investment advice, or any recommendation to buy, sell, or hold any security. ETFs named on this page are examples, not recommendations. The value of investments can fall as well as rise, and you may get back less than you invest. Shares Saver does not provide financial advice.
Own shares in your name
Start from ₦10,000 a month. Pause whenever you like.