The Complete Guide to The ABSA New Gold ETF

Have you ever wanted to invest in gold? The ABSA NewGold ETF provides a chance to buy securitized gold in a gold-backed exchange-traded fund. In 2017, the ABSA New Gold ETF was listed on the Nairobi Stock Exchange (NSE) enabling investors to invest in an instrument that tracks the price of Gold Bullion debenture in real-time.

This is a complete guide to investing in ETFs, particularly in investing the ABSA New Gold ETF or now commonly referred to as ABSA NewGold ETF a product of NewGold Issuer (RP) Ltd, as such listed as NewGold Issuer (RP) Ltd on the Nairobi Stock Exchange (NSE).

What is an ETF?

An Exchange Traded Fund (ETF) is a type of security that involves a basket of securities that are traded on an exchange just like a shares/stock. ETFs contain all types of investments including stocks, bonds, commodities or a mixture, and can cut across industry sectors or use various investment methodologies. Therefore, they act in a similar manner to mutual funds or unit trust portfolios, with the only difference being that they are traded on an exchange and their shares are bought and sold as ordinary stock. The price of an ETF’s share will change throughout a trading day as shares are bought and sold on the market.

Types of ETFs

There are various types of ETFs on larger exchanges around the world but we shall only mention four(4), which include:

• Bond ETFs include corporate or government-issued bonds.
• Industry ETFs track industry-specific stocks i.e. technology, oil and gas and more.
• Currency ETFs invest in foreign currencies such as USD, GBP, JPY and more.
• Commodity ETFs invest in commodities such as crude oil or gold – such is the case for the ABSA NewGold ETF, whose underlying asset being tracked is gold.

Is it a good investment?

ETFs are typically used for income generation, price increase speculation and to hedge or offset risk in an investor’s portfolio. This year, many investing in gold and silver ETFs particularly, are investing to offset the risk faced by the global pandemic and civil unrest experienced around the world. 

ETFs also offer a lower average cost of investment as it would normally be expensive for an investor to buy the underlying assets held in an ETF’s portfolio. Additionally, they offer a low expense ratio (the cost to operate and manage the fund) as they are passively managed. It is less time-intensive for the managers since  ETFs track an index. However, please note that there are actively-managed ETFs that have higher fees. All in all, as an investor you get to pay less broker commission as you only need to execute one transaction and have access to a vast portfolio of securities you otherwise would not. 

Are ETFs safer than stocks?

Sometimes ETFs can be quite risky especially if they invest in a single industry limiting diversification. In the times we live in, it’s not unusual for an entire industry to be severely affected and even shut down.

Also, consider the liquidity of the ETF. A lack of liquidity hinders transactions, therefore increasing the ETF’s inherent risk.

Overall, when it comes to safety in comparison to stocks, they are somewhat safer as they are more diversified than a single stock.

Investing in the ABSA NewGold ETF

The ABSA NewGold ETF trades the same way as normal equity security and therefore is subject to tax. The price of this security is based on the Kenyan shilling equivalent of the prevailing international market price of gold (typically quoted in USD). Since each NewGold security tracks the price of gold, it is backed by physical gold and there its value is equivalent to approximately 1/100th of an ounce of gold. This gold is held in a secure depository (NewGold’s custodian, ICBC Standard Bank in London) on behalf of the investors. The gold is insured, allocated and cannot be lent out.

Performance

The ABSA NewGold ETF portfolio asset allocation is 100% gold. As such, the price movement of the ETF is determined by the price movement of gold. Since gold has traditionally been used to hedge or point of safety during tough times as a store of value, gold has been rising in demand. As such, the ABSA NewGold ETF has been rising with the rise in global demand for safety.

The performance of NewGold ETF as per their last disclosure was as follows:

• Yield-to-date. The NewGold ETF’s yield to date (YTD) as of June 2020 is 44.52%. 
• Risk Statistics. The annualized risk of ABSA NewGold ETF is 20.34%. Since its inception, the ETF has experienced a drawdown of -28.58% as of June 2020. On the best month, the ETF experienced an upswing of 22.61%. Note: A drawdown is a measure of the deterioration of the portfolio from its historical peak. 
• Annual Return. The best annual return of the NewGold ETF as of June 2020 is 68.89%, while as the worst annual return is -17.82%. 

Investor Benefits of ABSA NewGold ETF

• Direct Investment in Gold. The NewGold ETF provides direct exposure to actual gold investment.
• Lower Cost. ETFs in general have lower fee structures. The ABSA NewGold ETF charges an annual management fee of 0.30%
• Investor protection. ETFs are fully backed by the underlying asset held by the portfolio. This portfolio holds 22.89 tons of gold in its reserve.
• Transparency. The NewGold ETF is cross-listed on the Nairobi Stock Exchange (NSE) and also the Johannesburg Stock Exchange (JSE). This enhances information disclosure with regard to portfolio holdings, investment methodology, constituent details and net asset value. This information can easily be accessed on a daily basis. 
• Traded like a share. Though ETFs are Unit Trust Portfolios, they trade like ordinary shares on the stock exchange. This makes them highly accessible and easy to trade. 

How to Buy & Sell the ABSA NewGold ETF

You can purchase the ABSA NewGold ETF through a broker – online or offline. Just visit or call your preferred broker and request to purchase the ABSA NewGold ETF.

Note: Brokers typically charge a commission for each trade.

Learn More: How to Buy Stocks Online on the Nairobi Stock Exchange

In A Nutshell

Let’s recap:

• ABSA New Gold ETF’s price is determined by the price movement of gold and is quoted in the Kenyan shilling equivalent of the prevailing international market price of gold.
• ABSA New Gold ETF is sold like an ordinary stock on the Nairobi Stock Exchange (NSE) and can be purchased through your broker.
• The best annual return of the ABSA New Gold ETF as of June 2020 was 68.89%.
• Gold has been used historically for income generation, price speculation and hedging or offsetting risk in an investor portfolio.

Happy Investing!

Related: What is the Minimum Amount to Invest in Nairobi Stock Exchange?

Image credits: Top by Michael Steinberg from Pexels

Article Source:

1. ABSA Bank. “Barclays launches first exchange-traded fund in Kenya, https://www.absabank.co.ke/article-hub/press-releases/barclays-launches-first-exchange-traded-fund/.” Accessed on 01st November 2020.
2. ETFSA. “NewGold ETF Minimum Disclosure Document – 30 June 2020, https://www.etfsa.co.za/Factsheets/absa%20-%20newgold%20-%20jun2020.pdf.” Accessed on 07th November 2020
3. The Kenyan Wall Street. “Absa New Gold ETF Hits New High at NSE, https://kenyanwallstreet.com/absa-new-gold-etf-hits-new-high-at-nse/.” Accessed on 07th November 2020.
4. Soko Directory. How to Invest In The NewGold In The Face of Covid-19 Pandemic, https://sokodirectory.com/2020/08/how-to-invest-in-the-newgold-in-the-face-of-covid-19-pandemic/.” Accessed on 07th November 2020.