Green Delta plans first local exchange traded fund

Green Delta Insurance Ltd, as the first entity, has announced to co-sponsor a passively managed local exchange traded fund (ETF) to offer investors a passive investment opportunity for a stable return.

The leading non-life insurer in the country said on Thursday the planned ETF, "DS 30 Index Tracking Exchange Traded Fund" (DS 30 ETF) with an initial target size of Tk50 crore will track the Dhaka Stock Exchange's (DSE) blue-chip index DS30.

It means the collective investment scheme will mimic the blue-chip index of the DSE in terms of its portfolio composition, said Md Rafiqul Islam, vice-chairman of Green Delta Dragon Asset Management Company Limited, the fund manager of the proposed ETF.

Unlike mutual funds, where the asset manager decides on how much of which securities the fund will hold, a passively managed index-tracking ETF proportionately holds the constituent companies of the tracked index.

As a co-sponsor, Green Delta Insurance itself will provide Tk2.5 crore to the fund while other sponsor(s) will invest the remaining amount to ensure a minimum 10% subscription of the fund by sponsors.

The rest of the amount needed to build the Tk50 crore fund will be collected from investors.

ETFs have the potential to attract global investors who believe in the economy and the reputed firms of Bangladesh, but do not have much time or energy to actively select and analyse stocks to buy and sell, said Bangladesh Merchant Bankers Association Vice-President Md Moniruzzaman, CFA.

Mutual funds also offer the same opportunity, and the difference between the two is, the performance of a mutual fund depends on the success or failure of the asset manager while passive index tracking simply replicates the performance of the market benchmark, he added.

Worldwide passive investment has been getting popular because of its long-term stable return and the comparatively low fees, said Moniruzzaman who is the managing director of IDLC Investments Ltd.

ETFs which publish real time net asset value also help increase market liquidity – enough buy and sell orders, he added.
2021 has been a record year for the global ETF industry, as with around $1 trillion in net inflow, the total asset under the industry's management soared to nearly $10 trillion, according to international compilations.

The Bangladesh market has all potential to attract some global investments if ETFs are successfully launched, believe both the industry professionals.   

The announced local ETF is subject to regulatory approval and Rafiqul Islam said they are working to launch it in three months.

The proposed fund manager Green Delta Dragon AMC is a joint venture between Green Delta Insurance, Viet Nam-based international fund manager Dragon Capital with over $8 billion in global assets under management, and another local firm.

The AMC team has been equipped with needed expertise while with the help of its shareholder Dragon, it is set to enjoy great access to global investors, said Rafiqul Islam.

"We will look for foreign funds, non-resident Bangladeshis' wealth and also the local passive investors," he added.

Bangladesh is yet to form its maiden ETF despite the fact that the Bangladesh Securities and Exchange Commission has finalised the relevant regulations in 2017.

Industry people said, a lack of market-making entities is one of the major reasons behind the slow progress as only a handful of broker-dealers are opting to avail the market making licence.

An ETF needs at least one broker-dealer with market making licence to become the authorised participant of the ETF to help stabilise the market prices of underlying securities.

"We are looking for such an authorised participant as some among the brokerage firms are getting ready to become market makers," said Rafiqul Islam.

"If they take too much time to become active market makers, we may apply to the regulator for a temporary waiver for the sake of early launching of the ETF," he said.

Sources said Dhaka Stock Exchange has recently requested the BSEC to grant such a waiver following LankaBangla Asset Management's efforts to launch a blue-chip index tracking ETF.

Green Delta Insurance on Thursday also announced its plan to launch a Tk50 crore open-end mutual fund namely "Green Delta Dragon Enhanced Blue Chip Growth Fund" which is subject to regulatory approval.