Dawn Global Management Limited, an England-based investment manager, has expressed its interest in helping Bangladesh with capital and technical assistance in launching the country's first exchange traded fund (ETF) in the stock market.
Maurits Pot, founder and chief executive officer of Dawn Global Management, expressed this interest at a meeting with the Bangladesh Securities and Exchange Commission (BSEC) on Sunday.
Five representatives of Dawn Global as well as BSEC Chairman Professor Shibli Rubayat-Ul-Islam and its Commissioner Shaikh Shamsuddin Ahmed were present at the meeting.
During the meeting, Maurits Pot said arrangements would be made to provide necessary technical assistance, knowledge transfer, and training for the introduction of ETFs in Bangladesh.
He also expressed interest in investing in ETFs.
However, market makers will be needed to launch ETFs. Three institutions have shown interest in this. They will be allowed soon, the BSEC said. And Dawn Global has expressed interest in giving these companies the training they need to be market makers.
During this time, the commission emphasised keeping the operating expenses of ETFs at a minimum level by international standards. The BSEC hopes that investors will get maximum profit from ETFs.
Professor Shibli Rubayat-Ul-Islam said, "Investing in ETFs is less risky. So as an investment product, it will be acceptable to investors."
He thinks that the launch of this new product will play an important role in increasing market stability, diversity, and liquidity flow.
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 a local merchant's chief officer.
Earlier, on 31 May, the Dhaka Stock Exchange (DSE) announced that it had planned to launch an ETF by September this year.
LankaBangla Asset Management, Shanta Asset Management, and Green Delta Dragon Asset Management have recently shown their interest in becoming a sponsor of an ETF, and already submitted proposals to this end, said a DSE source.
ETF is a type of pooled investment security that operates like a mutual fund.
Typically, ETFs will track a particular index, commodity or other assets, but unlike mutual funds, ETFs can be purchased or sold on a stock exchange the same way a regular stock is traded.
"ETFs will be passive in nature and they will reduce the market volatility and direct participation of the retail investors in the capital market," Tarique Amin Bhuiyan, managing director of the country's premier bourse, said at a press conference on 31 May.
"More institutional participation will be increased and the market will be in a stable stage," he added.
The Dhaka bourse's managing director said ETFs have several advantages over traditional open-end funds. The four most prominent advantages are trading flexibility, portfolio diversification and risk management, lower costs, and tax benefits.
He said an ETF is a product similar to a mutual fund, which will be managed by an asset manager. Initially, an ETF will be launched with DSE-30 index companies by setting up a fund of Tk50 crore.
Asset management companies will raise funds like mutual funds, allowing them to invest only in shares of DS30 listed companies. But it cannot buy excessive shares of a company alone but will invest in each company on a weighted average basis.
ETFs will be listed on stock exchanges and will also pay dividends to general investors.
Noting that ETFs are much safer than mutual funds, Tarique Amin Bhuiyan said that ETFs are never destroyed. For example, he said, the first ETF would be formed with DS30 index companies. Now, if one of the 30 companies exits the DS30 index, then the ETF's asset manager will sell the securities of that company and buy the securities of the company which is new to the 30-index.
Mutual funds also offer the same opportunity, and the difference between the two is that 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.
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.
Furthermore, Dawn Global has vast knowledge to operate an ETF in the developed world.
Last year, Dawn Global launched the Asian Growth Cubs ETF listed on the New York Stock Exchange. Cubs is the first active thematic ETF to focus on public equities in emerging and frontier growth markets.
Cubs offers investors' actively managed exposure to five large, fast-growing markets - Bangladesh, Indonesia, Pakistan, Philippines, and Vietnam. These five economies have individually grown GDP faster than 6% a year since 2000, Bangladesh and Vietnam have compounded GDP for 40 consecutive years including 2020. Yet, these markets remain inaccessible to most foreign investors due to little or no ETF coverage or American Deposit Receipt listings.