UAE bourse advises investors to go for exchange traded funds

October 16th, 2008 - 6:10 pm ICT by IANS  

Abu Dhabi, Oct 16 (IANS) Even as mayhem prevailed in Gulf markets along with the rest of the world, the Abu Dhabi Securities Exchange (ADX) said Thursday it believes exchange-traded funds (ETFs) are an ideal diversification tool for Gulf markets.At a financial brokerage forum here, ADX deputy director Rashed Al Baloushi explained how ETFs worked and how these have been expanding globally.

“An ETF is a collective investment vehicle that trades on a stock exchange, similar to a listed security,” Al Baloushi explained.

It holds assets such as stocks or bonds and trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day.

“They offer investors a portfolio of securities that imitates the performance of a particular market or index. With just one trade, investors could have exposure to a wide variety of securities, therefore diversifying their portfolios and spreading their risk,” he said.

Al Baloushi’s comments came even as United Arab Emirates (UAE) markets, along with others in the Gulf, slumped in the face of the global credit crunch.

The ADX index fell 2.13 percent Wednesday after two days of resurgence while the Dubai Financial Market dived 7.44 percent.

The gloomy scene prevailed in Thursday’s trading with all markets in the region starting off in the red.

According to Al Baloushi, ADX has been working with international organisations and experts specialising in ETFs, while closely evaluating the success of ETF products in other parts of the world and analysing the opportunities for Abu Dhabi and the wider Gulf region.

Citing research, he said ETF uptake has been accelerating rapidly, with considerable appetite coming from southeast Asian and Middle East investors.

He also said that during the first six months of this year in Europe, net sales of ETFs increased while those of mutual funds decreased.

“ETFs have proved themselves to be popular with both retail and institutional investors and we would like to give investors the opportunity to trade ETFs on ADX,” said Al Baloushi.

“Not only are they a way of diversifying, but they tend to be more cost-effective than mutual funds, as well as more accessible, flexible, liquid and transparent,” he stated.

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