CAIRO: Egypt-based investment bank Beltone Financial recently announced it will launch the region’s first exchange-traded fund (ETF) in January.
The fund – named XT-Misr – is an open-ended fund investing in a basket of securities that mirror performance of the benchmark CASE 30 Index.
“XT-MISR responds to institutional and private investors who want to spread their exposure investing in the Egyptian Exchange without concentrating their investments in individual shares, said Aladdin Saba, chairman of Beltone Financial.
Investing in XT-MISR replicates gains and losses of a basket of securities without the expense and hassle of buying the underlying securities. “It works as if you bought shares in the CASE 30 constituents, so it is not complicated, he added.
Price of XT-MISR fund can be viewed and traded anytime during the trading hours of the Egyptian Exchange. Investors can sell short, buy on margin, and invest any amount of money they want.
“You can buy one stock, 100 stocks, a million stocks. There is no minimum or maximum ceiling for investing in the fund, Saba explained.
“An ETF is the simplest, most economical and least risky way for retail investors to enter the stock market, said Maged Shawky, chairman of the Egyptian Stock Exchange. “In order to invest in the market, you have to [spare] LE 40,000-50,000, and risk will retain to one specific company.
But with the ETF, if you only have LE 1,000, you can invest in the fund.
And risk will be diversified among various companies, which is less risky for any investor.
XT-Misr requires no sales charges and low management fees. It is also diversified, providing exposure across a portfolio of stocks rather than an investment in a single company’s shares, which reduces risk to investors.
“Investors in XT-Misr are buying in the CASE 30 index, and therefore their risk is distributed among CASE 30 constituents: real estate, telecom, banking, construction, and so on, Saba added.
He pointed out that ETFs are gaining ground worldwide as a source of investment, with numbers growing 28-30 percent each year. “We are not re-inventing the wheel.. If something proves successful worldwide, chances are it will also be successful in the Egyptian market.
Beltone is investing LE 5 million in XT-Misr, equivalent to 2.5 percent of the fund’s total capital, which varies according to number of investors. The fund will initially seek LE 100 million and hopes to spark interest from foreign institutional investors.
“XT-Misr will generate demand on the Egyptian stock market and provide liquidity in the market, Shawky pointed out. “It will increase demand from investors who don’t want to take risk as well as foreign investors who want to gain exposure to the entire Egyptian market instead of investing in one stock.
The fund is a market maker, ensuring there is enough liquidity for investors to buy or sell shares at any time.
The CASE 30 index has risen five-fold since an economic reform drive in July 2004, but has lost more than 60 percent of its value since peaking in April this year amid the global financial market turmoil. That pales in comparison to the 51.29 percent gain in 2007; 10.26 percent rise in 2006, and the whopping 146.29 percent rise in 2005.
“The question is: Is this the right time to launch the fund amid price volatility and [global] market turbulence? Whoever buys in the fund does not buy in one company but buys in Egypt, and Beltone’s view on Egypt distinguishes it from any other economy in the world. We have been lucky to a great extent, Saba pointed out.
“We have ample amount of liquidity, and our economy is not based on one sector. It’s diversified across 17 sectors from industry, agriculture, services, and so on, he explained. “We have a young population, with 60 percent under the age of 30, which translates into more demand and growth.
“Even if our growth rates slip to 4-5 percent, demand will continue to exist and therefore Egyptian companies will grow, he added.
“Egypt’s foreign direct investment [FDI] is also diversified. We have investments from various countries, regional and foreign. So if one country [stumbles], it won’t reflect on our FDI to a large extent.
