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RMB midcap exchange-traded fund launched

Aug 07 2012 18:39
Johannesburg - Rand Merchant Bank (RMB) has launched South Africa’s first mid-cap exchange-traded fund (ETF) which was listed on the Johannesburg Stock Exchange (JSE) on Tuesday.

The aim of the RMB MidCap ETF is to provide returns for investors which are linked to the performance of the FTSE/JSE Mid-Cap Index. The ETF will invest in all components of the index in proportion to the index weightings.

The index includes the 60 largest companies on the JSE‚ in terms of market capitalisation‚ which are not included in the FTSE/JSE Top 40 Index. The fund therefore invests in the 41st to the 100th largest companies on the JSE.

The Mid-Cap Index has a market cap of around R720bn with the top 10 stocks in the index as liquid‚ if not more liquid‚ than the bottom 10 stocks in the Top 40.

In addition‚ mid-cap stocks have risen more than double those in the Top 40 with 69% growth over the past five years versus only 32% for the Top 40. Dividend yields on mid-cap stocks were also higher over this period at an average of 3.85% compared to 2.68% for the Top 40.

“We saw an opportunity in the mid-cap sector as it has displayed strong performance and represents an interesting prospect for investors who would like direct exposure to the mid-cap sector of the JSE‚” said RMB head of exchange-traded Products Yusuf Wadee.

“Remarkably‚ the Mid-Cap Index has historically displayed less volatility‚ and is certainly more balanced in terms of sector exposure‚ when compared to the Top 40 Index which is heavily skewed in favour of resources.

"However‚ these two market sectors offer two very different value propositions and we certainly see them complementing each other in constructing a holistic portfolio.”

RMB is not mandated‚ nor incentivised‚ to outperform the Mid-Cap Index. Instead‚ its goal is to replicate the index as best as possible. In this way‚ the investment is deemed to be passively managed‚ which is usually more cost effective than an actively managed fund.

Costs incurred on the RMB MidCap ETF are 50 basis points for investment amounts under R20m and 20 basis points on a sliding scale for every rand thereafter. The RMB MidCap ETF pays a quarterly distribution to investors‚ which is made up of dividends or interest earned on the underlying shares.

RMB’s MidCap ETF is the third in RMB’s suite of ETFs‚ all of which are listed on the JSE offering an easily-tradeable‚ convenient and cost-effective method for investors to gain exposure to various sectors of the market.

RMB ETFs are also highly transparent in nature and investors are able to see exactly which securities make up each ETF‚ including the weightings and sectors represented within a highly regulated trading environment.

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