ETF Fortunes Diminish

EghtesadOnline: The Central Securities Depository of Iran in its new report said the value of exchange-traded funds reached 146.09 trillion rials ($1.23 billion) by the end of the calendar month to July 22.

News ID: ۷۴۸۱۵۸

13 August 2019

Compared to an earlier report on the value of ETFs by the end of the first calendar month to April 20, the new numbers show a massive 42% decline in the value of active ETFs.

According to the report, published in the capital market clearing house website, there are presently 38 ETFs operating in the domestic capital market.

An ETF is a type of fund that owns underlying assets (shares, stocks, bonds, oil futures, gold bullion, foreign currency) and divides ownership of those assets into shares, Financial Tribune reported.

ETFs hold multiple underlying assets, rather than only one like a stock. An ETF can own hundreds or thousands of stocks across various industries, or it could be isolated to one particular industry or sector.

CSDI reported on the top 10 ETFs in the country.

Arman Parand Mapna Project Fund is the biggest ETF with a total value of 40.45 trillion rials ($342.8 million).

Etemad Afarin Parsian Fund is next. Its value reached 12.67 trillion rials ($107.43 million) by July 22.

Amin Farda Fund, worth 10.17 trillion rials ($86.18 million), ranked third.

It is followed by Kamand Fixed Income Investment Fund worth 10.107 trillion rials ($85.6 million), Parand Paydar Sepehr Fund with 10.102 trillion rials ($85.61 million) and Arman Ati Kosar Fund with 9.96 trillion rials ($84.71 million).

Shortcomings

Delving into drawbacks of ETFs, the Tehran Stock Exchange in a report said the funds’ performance falls far short of expectations despite the fact that on the global and regional level they continue to expand both in value and variety.

On the root causes of why Iranian ETFs have failed to flourish at the same pace as their international peers, TSE blamed a variety of factors, namely lack of after-hours trade in the capital market and ETFs not being indexed.

Lack of after-hours trade for most indexed ETFs in the capital market makes it rather difficult for tracking indexes.  After-hours trade has the merit of attracting groups of dealers who want to avoid the risk of daily volatility in equity prices.

The fact that most ETFs in the domestic capital market are non-index is another drawback.

The report said only 2 of the active ETFs are indexed, and in terms of value, the index fund accounts for barely 3% of the total value of funds. This is while the number of index funds in the US capital market is ten times higher than the non-index peers.

Data show that since inception in 1990, the value of ETF assets across continents reached $4 trillion by April 2017 and exceeded $5 trillion by the end of January 2018, indicating their increasing popularity.

The US has the biggest ETF market in the world, holding 71% of the total value of ETF assets followed by Europe and Japan with 17% and 6% respectively.