KARACHI: JS Momentum Factor Exchange-Traded Fund (JSMF-ETF) will list on the stock market on Friday (today), enabling investors to trade the basket of 10 companies in a lot size of 500 units carrying the face value of Rs10 each.

Speaking to Dawn on Thursday, JS Investments Ltd CEO Iffat Zehra Mankani said JSMF-ETF doesn’t track a market capitalisation-based index, which makes it inherently different from the four ETFs previously listed on the Pakistan Stock Exchange (PSX).

Traded on the exchange like a single stock, ETFs give investors exposure to a number of companies at once while combining high returns of direct stock investing with the diversified base offered by mutual funds.

The previously listed ETFs have received poor response from investors in terms of the average daily traded volumes. “Existing ETFs have attracted low volumes on the PSX because of their entirely passive nature. One could earn similar returns by investing either in a handful of good companies or through a good mutual fund,” she said.

The new exchange-traded fund doesn’t track a market capitalisation-based index

Ms Mankani said JSMF-ETF will combine active and passive investment approaches but without the human bias element typically associated with mutual funds. “Investment decisions will be machine-based. Plus, the constituent shares won’t be selected because of their market capitalisation. It’ll use a trend or momentum-based investment approach,” she said.

JSMF-ETF will track the JS Momentum Factor Index, which consists of large- and mid-capitalisation stocks showing a high “price momentum”. The index will rebalance every month to ensure the inclusion of stocks whose prices have consistently risen for a certain period and are likely to keep rising in the near future.

The benchmark currently consists of Treet Corporation Ltd, TeleCard Ltd, National Refinery Ltd, Meezan Bank Ltd, Engro Fertilisers Ltd, Systems Ltd, TPL Corporation Ltd, Sui Northern Gas Pipelines Ltd, Kot Addu Power Company Ltd and Amreli Steels Ltd.

She said back tests show that the momentum approach outperformed the KSE All-Share index by six per cent on an annualised basis from 2001 to 2021, as the latter posted an average return of 19pc a year.

Speaking to Dawn, JS Global Capital CEO Muhammad Kamran Nasir demanded that the regulators should make margin financing available for the ETFs to ensure higher liquidity. The decision will allow investors to trade ETFs using borrowed funds available through various margin products — facilities they’re currently using for many of the shares that underlie ETFs, he said.

“I’ve raised this issue with the regulators. They’ve shown a positive response but have yet to take any concrete step in this regard,” he said.

Published in Dawn, January 7th, 2022