In its endeavour to meet demand and further its expansion into Africa, Absa Bank’s cor-porate and investment banking division will list its NewGold exchange-traded fund (ETF) on the Mauritius Stock Exchange (SEM) this quarter, says the division’s investments head, Vladimir Nedeljkovic.

NewGold ETF issues instruments that are structured as debentures and backed by physical gold, with each debenture repre-senting about 1/100th of an ounce. They are held in secure vaults at the London premises of global custodian company Brink’s Global Services.

Mauritian investors will, therefore, be able to invest in gold bullion in their local currency by buying NewGold securities.

Nedeljkovic tells Mining Weekly that Absa is also considering the expansion of its prod-uct offering into Uganda and Zambia to meet the demand for ETFs in Africa.

He says that Absa was approached by the exchanges in various African countries where the ETF market was nonexistent to assist in devel-oping the appropriate infrastructure for the introduction of ETFs, in collaboration with regulators and various market participants.

“Products like NewGold increase liquidity in a market, which is beneficial in smaller African markets that are very illiquid, owing to the lack of investable securities,” he explains.

NewGold also introduces an asset class that is not readily available to African investors.

Further, gold is a particularly interesting asset because of its low correlation with other asset classes, which makes it a good portfolio diversifier.

“In general, the inclusion of precious metals in a portfolio will do a lot to improve its risk-return characteristics and reduce the overall volatility of that portfolio,” says Nedeljkovic, adding that gold also acts as a good hedge against currency depreciation.

Moreover, the pricing of each unit in an ETF is wholly transparent as it is the market value of a unit of gold in a particular currency at any moment in time, which is the opposite of investing in a gold mining company, where various factors influence its market performance.

“If you look at the performance of gold miners, compared with the actual metal, it has been lacking,” he says, pointing out that only a part of a gold company’s performance is related to the price of the metal.

“In addition to the price of gold, perform-ance of a gold mining company is linked to a variety of other factors, including production costs, labour relations, company management and other similar risks.”

Nedeljkovic, therefore, maintains that it is simpler for investors to expose themselves to the metal itself than to depend on a gold miner’s operations.

“People want to decouple risks. So, if they want to invest in a company, which is a legit-imate investment, they should invest in a company. However, if they want to invest in gold, then the best way to do that would be through a gold ETF,” he says.

After being launched in South Africa in 2004 as the country’s first ETF and the world’s third gold ETF – after ETFs in Australia and the UK – NewGold had its first listing on another African country’s stock exchange in 2010, when it launched in Botswana. It was then launched in Nigeria, in December 2011, followed by a listing on Ghana’s stock exchange in August last year.