Van Eck Global files for Nigeria, Western Africa ETF

Nov 3rd, 2011 | By | Category: Equities

Van Eck Global, the New York-based company behind the Market Vectors range of ETFs, has filed paperwork with the US Securities & Exchange Commission (SEC) to launch an ETF focused on Nigeria and Western Africa.

Van Eck Global files for Nigeria, Western Africa ETF

The Market Vectors Nigeria-Focused Western Africa ETF will provide exposure to the oil-rich economy of Nigeria and surrounding countries in Western Africa.

The Market Vectors Nigeria-Focused Western Africa ETF will enable investors to gain exposure to the oil-rich economy of Nigeria and surrounding countries in Western Africa.  The ETF will seek to replicate as closely as possible, before fees and expenses, the price and yield performance of the Market Vectors Nigeria-Focused Western Africa Index.

This proprietary index, calculated by Germany-based Structured Solutions AG, consists of securities of companies that are domiciled and primarily listed on an exchange in Western Africa or that generate at least 50% of their revenues in Western Africa. Plus, as of each quarterly rebalance, at least 40% of the Index will consist of securities of companies that are domiciled and primarily listed on an exchange in Nigeria or that generate at least 50% of their revenues in Nigeria.

To mitigate liquidity risks, constituent stocks of the index must have a market capitalization of greater than $150 million on a rebalancing date and must have a three-month average daily trading volume value of at least $1 million. As of September 30, 2011, the Index included 35 securities of companies with a market capitalization range of between approximately $130 million and $12 billion and an average market capitalization of $2.8 billion.

With Nigeria such a large component of the index, Van Eck Global are clearly expecting increased investor appetite in the country. Indeed, Nigeria has made progress with reforms that are now delivering strong economic fundamentals. The government has maintained prudent macroeconomic policies, strengthened financial institutions and, albeit slowly and unevenly, is undertaking reforms to transform the economy structurally. The reform effort, significantly aided by revenue from high oil prices, has led to an improved macroeconomic climate, including weaker inflation and strong GDP growth.

Real GDP growth in Nigeria rose from 7.0% in 2009 to an estimated 8.1% in 2010. The robust growth in 2010, in the aftermath of the global financial and economic crisis, underscored the resilience of the Nigerian economy and to some extent, the prudence of its economic policies. Medium-term prospects are also bright, with real GDP growth projected to remain strong and stable at 6.9% in 2011 and 6.7% in 2012.

However, notwithstanding these positive developments, the Nigerian economy, as with others in the Western Africa region, remains confronted by many serious challenges and investors need to be conscious of the significant risks involved. Structural imbalances and a lack of diversification – with Western African economies excessively dependent on commodities – are preventing domestic economies from flourishing. Moreover, high youth unemployment, poor infrastructure, terrorism and widespread insecurity, and endemic corruption continue to plague the region.

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