WHAT ARE ETFS (Exchange Traded Funds)

ETFs are similar in many ways to mutual funds, except that ETFs are bought and sold throughout the day on stock exchanges while mutual funds are bought and sold based on their price at the day's end. ETFs are a type of investment fund very similar to the mutual fund. 

ETFs involve a combination of securities like equities, bonds, commodities, etc, in one basket, which can be transacted as a whole on the stock exchange. An ETF holds assets such as stocks, bonds, currencies, and/or commodities such as gold bars, and generally operates with an arbitrage mechanism designed to keep it trading close to its net asset value, although deviations can occasionally occur. 

Most ETFs are index funds, that is, they hold the same securities in the same proportions as a certain stock market index or bond market index. An ETF divides ownership of itself into shares that are held by shareholders..ETFs are attractive investments because of their low costs, tax efficiency, and traceability. The price of an ETF’s shares will change throughout the trading day as the shares are bought and sold on the market.

This is unlike mutual funds, which are not traded on an exchange, and trade only once per day after the markets close. An ETF's expense ratio is the cost to operate and manage the fund. ETFs typically have low expenses since they track an index. Not all ETFs are equally diversified. Some may contain a heavy concentration in one industry, or a small group of stocks, or assets that are highly correlated to each other. ETFs provide investors with the ability to gain as stock prices rise and fall, they also benefit from companies that pay dividends. 

DIVIDEND are a portion of earnings allocated or paid by companies to investors for holding their stock. ETF shareholders are entitled to a proportion of the profits, such as earned interest or dividends paid, and may get a residual value in case the fund is liquidated. The fund provider owns the underlying assets, designs a fund to track their performance, and then sells shares in that fund to investors. Shareholders own a portion of an ETF, but they don’t own the underlying assets in the fund Most ETFs are passively managed investments; they simply track an index. Some investors prefer the hands-on approach of mutual funds, which are run by a professional manager who tries to outperform the market. There are actively managed ETFs that mimic mutual funds, but they come with higher fees. So consider your investing style before buying.

These are the types of ETF'S:

(1.)Stock ETF

(2.)Commodity ETF

(3.)Bond ETF

(4.)Currency ETF

(5.)Others

The first ETF listed on The Nigerian Stock Exchange’s ETF Board in December 2011 was a commodity ETF. Since then, a number of equity-based and Fixed Income ETFs have been introduced to the Nigerian bourse. When you buy an ETF that tracks the NSE 30 Index, it gives you ownership and the performance of all the securities listed in the NSE 30 Index. Today, the NSE prides itself in its position as the second-largest ETF market in Africa with a market capitalization of N24.5 billion as of December 31, 2020, up by 270 percent from 2019. The market value of ETFs in Nigeria reached N24.5 billion last year and there is the possibility for it to grow bigger because a year earlier, the capitalization was 270 percent lower. ETFs are one of the fastest-growing capital-market investment vehicles in advanced economies, offering transparency, liquidity, diversification, and lower costs.

The supply-side has deepened from a single ETF tracking the price of gold to 12 ETFs currently offering exposure to equities, fixed income, commodities including Newgold ETF; Vetiva Griffin 30 ETF; Lotus Halal Equity ETF; Stanbic IBTC 30 ETF; Vetiva Banking ETF; Vetiva Consumer Goods ETF; Vetiva Industrial ETF; Vetiva S & P Nigeria Sovereign Bond ETF; The SIAML Pension ETF 40; Greenwich Alpha ETF; Meristem Growth ETF; and Meristem Value ETF.