In the welcome remarks, Mr. Rashid bin Ali Al-Mansoori, CEO of Qatar Stock Exchange, stressed on the importance of holding the second symposium on Exchange Traded Funds (ETFs), pointing out that such series are an important initiative gathering specialists and decision-makers and open the door to the mixing of views on a number of important issues affecting the sector Financial markets in the State of Qatar. He added that the ETFs are important investment instrument for all market and thus it is important to listen to the views of a group of market experts on this important investment tool
“Qatar Stock Exchange offers a platform for Exchange Traded Funds. ETFs, as they are commonly known, are open-ended, index-based funds, traded intraday, offering broad exposure across developed, emerging and frontier markets, equities, fixed income and commodities. QSE is working on three live ETF projects. However, we are waiting on the runway for clearance from the control tower (the regulator) to take off and launch ETFs,” Mr. Al-Mansoori concluded.
The interactive workshop had active participation from the attendees who also discussed the ETF products for the Qatari market and the benefits it would bring to the investors by allowing them to diversify their holdings and to allow them new investment opportunities.
A panel discussion highlighted the evolution of ETFs in Qatar and challenges that need to be addressed by the regulator and depository. The esteemed group of panelists included Mr. Fahmi Al Ghussain, CEO, Amwal; Mr. Akber Khan, Director – Asset Management, Al Rayan Investmen; and experts from BlackRock and Bank of America Merill Lynch moderated by Mr. Nick Ogbourne, Business Development Manager at QSE.
Mr. Mohsin Mujtaba, Director of Products & Market Development, Qatar Stock Exchange, explained why regional and global markets offer investment opportunities in ETFs. He stated: “ETFs provide investors with the ability to buy the index through a single trade on the exchange. Suppose an investor wants the returns equivalent to QSE 20 Index or Al Rayyan Islamic Index, all they will need to do is to buy the ETFs that track these indices by placing just one order to their broker. Today, in the absence of ETFs in Qatari market, replicating the index means placing at least 20 orders with correct proportions and it presents its own difficulty of making sure the all 20 orders are executed at the right prices. This is not easy for individual investors. This is why, ETF fund managers appoint professional Liquidity Providers who make sure that the investors will be able to buy the ETF at the fair value of the index. Through ETFs investors enjoy the benefits of asset diversification, without the associated costs of building the portfolio themselves. “
Mr. Mujtaba elaborated on the investment benefits of ETFs and stated that ETFs offer exposure to a diversified portfolio of stocks with a single execution, and also can be used to provide exposure to non-domestic markets using the local currency. Therefore ETFs can be attractive as investments because they give investors (particularly retail investors) the chance to add or reduce exposure to broad market segments in various countries or sectors at a cost that often is lower than building a portfolio of such individual stocks or other non-exchange traded investment vehicles, and thus can help improve overall market liquidity, Mr. Mujtaba added.
The panelists discussed the importance of ETFs to the local capital market and said that they are very vital to build investment portfolios and thus they are widely used by institutional investors and increasingly by financial advisors and retail investors to achieve passive exposure according to preferred investment strategies, allow investors big and small to build institutional-caliber portfolios, gain convenient access to markets that would otherwise be difficult to invest in, implement tactical adjustments to portfolios, and allow investors to hedge the market. Blackrock expert explained the benefits of ETFs and how they are essential to build investment portfolios, adding that ETFs globally have 3 trillion dollar of assets under management. The panelists also discussed the three ETF projects intended to be launched in Qatar after obtaining regulatory approval. They elaborated that one of these will be an ETF based on government fixed income risk from an Asian borrower; the second product is likely to be an ETF based on a representative Qatar-country index and the third a sharia-compliant product.
“Liquidity Providers play a crucial role in ensuring that the ETFs trade at fair value. They need to have efficient price hedging mechanisms in place by the exchanges, depository and regulators to make sure investors get the best execution price. One of the main reasons why ETFs were not successful in other markets in the region was the absence of efficient price hedging mechanism.” the panel concluded.
ETFs can be bought and sold like shares throughout the trading day. Individual investors may purchase or sell an ETF via their broker, and may enter the same types of orders that are placed for shares. Investors have full transparency of the underlying portfolio of intra-day priced assets, with holdings disclosed on a regular, frequent basis.