BY MTHANDAZO NYONI MORGAN&Co says its multi-sector exchange traded fund (ETF) was up 169,43% in the first half of this year, outperforming a Zimbabwe Stock Exchange (ZSE) AII-Share Index.

Despite unprecedented stock market volatility in the first half, Morgan&Co maintained bullish sentiment towards financial services counters.

“The financial services have largely remained undervalued,” the firm said in an economics and market intelligence report.

“Our stance towards the sector seems to have paid off so far given the multi-sector ETF was up 169,43% in 1H 2022 (first half of 2022) compared to a ZSE AII-Share Index performance of 82,88%,” the securities firm added.

ETFs are a basket of different types of investments such as stocks, commodities and bonds that are pooled into a single entity, which then offer shares to investors that are subsequently traded on major stock exchanges.

In Zimbabwe, Old Mutual pioneered ETFs when it listed the Old Mutual Zimbabwe Stock Exchange Top Ten Index ETF in January 2021.

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Morgan&Co followed in January this year, launching its multi-sector ETF and listing it on the local bourse.

The securities firm last month also launched another ETF called Made in Zimbabwe ETF.

The ETF industry globally ended 2020 with over US$5,5 trillion investments, according to the Investment Company Institute.

“Our multi sector ETF’s net asset value grew by 134,4% in 1H 2022 which was also comfortably above the ZSE All-Share Index over the same period. We attribute this performance to our decision to focus more on counters we believed to be highly undervalued and fundamentally sound,” the report read.

It said such counters include Old Mutual, NMBZ and First Capital Bank which make up about 90% of the underlying portfolio. These stocks have also been some of the strangest performers on the ZSE this year, posting gains of 140%, 255,97% and 254,19% respectively.

“Our ETF is actively managed, so it affords us a degree of flexibility in terms of entering and exiting certain positions. This has, therefore, enabled us to respond to new material information which may affect any portfolio constituent,” Morgan & Co said.

“Going forward, we expect the counters within our portfolio to perform well given the financial services industry’s shift from a reliance on income from normal services such as interest income and insurance premiums to focus on the expansion of investment portfolios consisting of equities and property,” it said.

“This is seen as a defence against inflationary pressures due to the hedging capabilities of the above-mentioned classes.

“We, therefore, expect banks and insurance companies to benefit from rising fair value gains owing to the historically high positive correlation between equity, property prices and inflation.”

Subsequently, researchers said an upward movement of the average earnings per share in the sector is likely to follow, further adding to the current undervaluation.

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