Kenya’s Capital Markets Authority (CMA) has approved a new investment fund from Wall Street Africa (WSA), a Nairobi-based financial media and fintech startup, that will allow investors to buy into a group of listed banks in a single investment.
The WSA Banking exchange-traded fund (ETF) will hold shares in banks listed on the Nairobi Securities Exchange (NSE). According to CMA, it will be Kenya’s first locally domiciled exchange-traded fund and is expected to list in the fourth quarter.
The launch comes as Kenyan bank stocks lead a strong rally in the country’s equities market, with the NSE Banking Index up 30.9% this year through July. The new ETF allows investors to gain exposure to that broader banking rally through a single investment rather than picking individual stocks.
WSA founder Erick Asuma told TechCabal on Tuesday that the company is targeting KES 5 billion to KES 7 billion ($38.6 million to $54.1 million) in committed capital at launch, with the fund expected to attract mainly retail investors over time.
How the ETF works
An ETF is a fund that holds a group of investments but trades on a stock exchange like a normal share. Instead of deciding how much to allocate to local banks and other listed lenders, investors can buy units in the WSA Banking ETF to gain exposure to the group with a single investment.
The WSA fund will track the NSE Banking Index by investing in the bank shares that make up the index, so the value of an investor’s units will rise or fall as the underlying bank shares rise or fall. Tradiam Asset Managers, a Kenyan fund management firm, will manage the fund, and investors will trade the ETF units on the NSE.
Buying one bank’s shares leaves an investor exposed to that company’s performance, while buying the ETF spreads that exposure across the banking sector, so a weak performance by one lender can be offset by gains at others. The trade-off is that an investor also gives up some of the upside that could come from picking a single bank that performs far better than the rest.