Manage Cookie Consent
To provide the best experiences, we use technologies like cookies to store and/or access device information. Consenting to these technologies will allow us to process data such as browsing behavior or unique IDs on this site. Not consenting or withdrawing consent, may adversely affect certain features and functions.
Functional Always active
The technical storage or access is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested by the subscriber or user, or for the sole purpose of carrying out the transmission of a communication over an electronic communications network.
Preferences
The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user.
Statistics
The technical storage or access that is used exclusively for statistical purposes. The technical storage or access that is used exclusively for anonymous statistical purposes. Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you.
Marketing
The technical storage or access is required to create user profiles to send advertising, or to track the user on a website or across several websites for similar marketing purposes.
Manage options Manage services Manage {vendor_count} vendors Read more about these purposes
View preferences
Privacy Policy {title}
RateCaptain
  • Home
    • About Us
    • Contact Us
  • FX Rates
  • Money Market
  • Cryptocurrency
  • Commodities
  • Corporates
No Result
View All Result
Subscribe
  • Home
    • About Us
    • Contact Us
  • FX Rates
  • Money Market
  • Cryptocurrency
  • Commodities
  • Corporates
No Result
View All Result
RateCaptain
No Result
View All Result
Home Economy

Investors Bear Losses as Nigeria Exits S&P Index

Stephen Akudike by Stephen Akudike
November 6, 2023
in Economy
Reading Time: 2 mins read
A A
0
Investors Bear Losses as Nigeria Exits S&P Index
Share on FacebookShare on TwitterShare on WhatsappShare on Telegram

Synthetic ETF Investors Suffer Losses as Nigeria is Dropped from Underlying Index

Investors in a derivative-linked “synthetic” exchange-traded fund (ETF) have faced financial losses as Nigeria was removed from its underlying index, exposing potential vulnerabilities in this investment structure. The Financial Times reported that Nigerian stocks previously accounted for 4.8% of the £68 million Xtrackers S&P Select Frontier Swap UCITS ETF (DX2Z) until October 31.

AlsoRead

Nigeria’s Inflation Rate Declines to 23.71% in April 2025

CBN Launches Diaspora BVN Platform, Targets $1 Billion Monthly Remittances

World Bank Forecasts 22.1% Inflation for Nigeria in 2025 Amid Monetary Tightening

On November 1, S&P Dow Jones Indices unexpectedly stripped Nigeria from the S&P Select Frontier index, resulting in the fund’s portfolio writing down the value of its Nigerian holdings to zero. This move impacted investors in the synthetic ETF, which relies on swap contracts to replicate the performance of underlying assets rather than direct ownership.

The removal of Nigeria from the index was attributed to “significant delays in capital repatriation” for those selling Lagos-listed stocks. The country has grappled with foreign exchange scarcity, with importers previously unable to access dollars at the official exchange rate until May when President Bola Tinubu took office.

The Financial Times report suggests that a physically replicated ETF or mutual fund would have had more flexibility in handling such events, as they could have sold the Nigerian holdings and reinvested the proceeds.

Kenneth Lamont, a senior fund analyst for passive strategies at Morningstar, pointed out that this situation could be viewed as a structural disadvantage of swap-based exposures compared to physically managed funds. He explained that the latter provides greater flexibility to navigate such occurrences.

Despite this setback, it’s worth noting that both synthetic and physical funds can face similar outcomes in cases of geopolitical or structural risks. Michael Mohr, the global head of Xtracker products, highlighted that these incidents can impact both types of ETFs. Synthetic ETFs currently account for a significant portion of Europe’s ETF market.

In the case of Nigeria’s removal from the index, the synthetic ETF structure came with the disadvantage of experiencing a complete write-down of the Nigerian holdings. Synthetic ETFs offer advantages in terms of tracking accuracy and performance in specific market conditions, but they also carry counterparty risk. Investors are encouraged to weigh the risks against the benefits when choosing between synthetic and physically replicated ETFs.

Manooj Mistry, the chief operating officer at HANetf, noted that while synthetic ETFs can provide excellent tracking profiles, there are inherent risks in the event of extreme market scenarios. Frontier markets, in particular, can pose unique challenges for investors, and awareness of potential risks is crucial when entering such markets.

The incident with the Xtrackers S&P Select Frontier Swap UCITS ETF highlights the complexities of investing in synthetic ETFs and the need for investors to carefully consider their choice of investment vehicles.

Tags: #NigeriaETFsIndex ExclusionInvestment LossesS&P IndexSynthetic ETFs
Previous Post

Nigerian Financial Markets: Rising Yields and Central Bank Moves Shake Traders

Next Post

The US Daylight Saving Time Saga: Economic Implications

Related News

Navigating Inflation Crossroads: Nigeria’s Economic Odyssey Amidst Global Trends

Nigeria’s Inflation Rate Declines to 23.71% in April 2025

by Stephen Akudike
May 16, 2025
0

Nigeria’s inflation rate eased slightly in April 2025, with the National Bureau of Statistics (NBS) reporting a year-on-year rate of...

NEC Affirms CBN $3 Billion Loan for Naira Stability

CBN Launches Diaspora BVN Platform, Targets $1 Billion Monthly Remittances

by Jide Omodele
May 14, 2025
0

The Central Bank of Nigeria (CBN), in partnership with the Nigeria Inter-Bank Settlement System (NIBSS), has unveiled a new digital...

World Bank Forecasts 22.1% Inflation for Nigeria in 2025 Amid Monetary Tightening

by Jide Omodele
May 14, 2025
0

The World Bank has projected that Nigeria’s inflation rate will average 22.1% in 2025, as the Central Bank of Nigeria...

Naira appreciated to N738/$ in the Parallel Market

Naira Faces Pressure as Dollar Strengthens Despite Nigeria’s Oil Output Gains

by Stephen Akudike
May 14, 2025
0

The Nigerian naira remained under pressure in the parallel market, trading around N1,620.25/$ as demand for the U.S. dollar continued...

Next Post
The US Daylight Saving Time Saga: Economic Implications

The US Daylight Saving Time Saga: Economic Implications

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Recommended

Nigerian Equity Market Sees Impressive N1.08tn Wealth Gain Amidst Bullish Trading.

Nigerian Stock Market Rallies as NESTLE, HONEYFLOUR Lead Gainers

May 16, 2025
CBN Supplies $29.5 Million at FX Auction as Naira Depreciates at I&E Window.

CBN Bolsters Non-Oil Export Strategy Amid Oil Price Slump

May 16, 2025

Popular Story

  • World Bank Forecasts 22.1% Inflation for Nigeria in 2025 Amid Monetary Tightening

    0 shares
    Share 0 Tweet 0
  • FG Raises N346.155 Billion in November Bond Auction Amid Increased Allotments

    0 shares
    Share 0 Tweet 0
  • Nigerian Stock Market Slips as Investors Lose N297 Billion

    0 shares
    Share 0 Tweet 0
  • Fair Money Job Opening: Regional Sales Manager

    0 shares
    Share 0 Tweet 0
  • BlackRock Joins Blockchain Platform Axoni for Equity Swap Trades

    0 shares
    Share 0 Tweet 0
RateCaptain

RateCaptain

We bring you the most accurate in new and market data. Check our landing page for details.

  • Home
  • About Us
  • Privacy Policy
  • Terms & Conditions
  • Disclaimer
  • Cookie Policy
  • Contact Us

Copyright © 2022 RateCaptain - All rights reserved by RateCaptain.

No Result
View All Result
  • Home
    • About Us
    • Contact Us
  • FX Rates
  • Money Market
  • Cryptocurrency
  • Commodities
  • Corporates

Copyright © 2022 RateCaptain - All rights reserved by RateCaptain.

RateCaptain
?>