Hajara Adeola, managing director, Lotus Capital Limited, in this interview with BusinessDay’s Hope Moses-Ashike, speaks on the benefits of the forthcoming listing of first Sharia Compliant Equity Exchange Traded Fund, the Lotus Halal Equity Exchange Traded Fund (LHEETF) on the floor of the Nigerian Stock Exchange via an initial offer for subscription. Excerpt:
We have seen the listing of other Exchange Traded Funds in the Nigerian market i.e. the NEWGOLD Exchange Traded Fund and the Vetiva Griffin 30 Exchange Traded Fund. What would make the LHE ETF different from the other ETFs that exist?
As you may be aware, the ETF market is still quite shallow compared with other mutual funds. So, the listing of the LHE ETF will provide more depth to the market.
Like the Vetiva Griffin 30 ETF, the LHE ETF will track a market index on the Nigerian Stock Exchange. The key difference between the two is that while the Vetiva Griffin 30 ETF tracks the NSE 30 Index i.e the 30 most capitalised stocks on the floor of the NSE which includes banks, insurance, brewery, construction companies among others, the LHE ETF will track the NSE-Lotus Islamic Index. The NSE-Lotus Islamic Index tracks the performance of 15 stocks on the NSE that have passed sharia screening.
I should add that by sharia screening, I mean that eligible securities for the Index would undergo a two-stage screening. There is an initial qualitative screening which eliminates any listed company that deals in alcoholic beverages, tobacco, conventional financial services such as banks and insurance companies, gambling and adult entertainment. At the second stage, companies which passed the initial filter are then evaluated on the basis of Islamic financial (quantitative) screens to eliminate those with unacceptable levels of debt (e.g. total debt must not be more than 30% of market capitalisation), cash (e.g. cash and interest bearing securities must not be more than 30% of market capitalisation; Accounts receivables must not be more than 30% of total assets) and interest income (e.g. interest income must not be more than 5% of revenue). Only companies that pass the second stage are considered for further analysis. Some other important criteria considered are the liquidity and market capitalisation of the securities.
On the other hand, the Newgold Exchange Traded Fund tracks the price of gold in the global markets.