Benefits to listing Nasdaq index-linked ETFs on local exchanges

16/08/2018 - 1:54pm
Related Topics
Listings

The major American stock indexes have recovered from the downturn of the Great Recession – and then some. Built on the back of improved fundamentals and technology trends that continue to drive valuations and economic gain, equities are flying high these days. And at the crest of the rising tide is the Nasdaq-100 Index: the definitive index that captures the breadth, diversity, innovation and value of technology stocks today.

For US investors, exposure to the Nasdaq-100 (NDX) is as easy as contacting a broker or using an online platform to buy shares in an ETF tracking the index. The process is also simple for buying into any of the thematic ETFs that are based on Nasdaq indexes. However, international traders still face physical and regulatory barriers to US market participation that make it difficult to access these important products for themselves and their clients. Exchanges abroad might also miss out on trading activity that could be generated by such investment products that are in high demand.

Yet there's a solution that benefits all parties involved: locally listed ETFs tied to Nasdaq Indexes.

Nasdaq-100 and ETFs gateway to growth

When it comes down to the numbers, the Nasdaq-100 has flourished, having generated higher returns than the S&P 500 in eight of the last 10 years. Since 2003, companies included in the Nasdaq-100 index have achieved eye-popping compound annual growth rates of:

  • 24 per cent in earnings.
  • 14 per cent in revenue.
  • 20 per cent in dividend value.
  • 11 per cent in price/earnings.

The incredible performance of the index is due in large part to the maturation of its components into companies now vital to everyday life. Where industrials were once the bedrock of the economy, technology companies like Amazon, Microsoft, Apple, Facebook and Google have assumed the mantle in the modern age. But that's only part of the story. Disruptors like Tesla and Netflix are also counted next to pioneers like Cisco and Comcast. These are the businesses that investors globally are looking to access: the leaders, the cornerstones and the boundary-pushers.

ETFs tracking a stable of thematic indexes built by Nasdaq have also garnered more attention from overseas investors. These products grant investors concentrated exposure to themes like disruptive technology, artificial intelligence, robotics and cybersecurity, making them a powerful vehicle for investment growth in a 21st century portfolio. Yet many global investors so often find themselves either falling just short of accessing such ETFs or jumping through hoops to get them.

Locally listed ETFs – a boon for traders and exchanges alike

Already, 348 Nasdaq Index-linked ETFs are traded across 19 exchanges globally—and there's yet more room to cover. A trader in Asia or Africa may use Facebook, Amazon or Baidu every day but assuming a stake in the company is not as easily accomplished, especially if no cost-effective or connected broker exists in the community. Taxation is also a major issue for non-US citizens. Foreign traders often have to go through the rigorous process of securing tax certificates if they want to trade US-listed equities.

However, when Nasdaq finds local partners to launch Nasdaq-100 ETFs, the listing benefits touch all areas of the investing process:

  • Streamlined access: When South African fund Satrix teamed with Nasdaq in February 2018 to launch a Johannesburg Stock Exchange-listed Nasdaq-100 ETF, it gave local investors a straight line to titans of US-listed stocks like Amazon, Apple and Netflix: no more offshore accounts to set up or tax structures to settle.
  • Diverse exposure: With a single share, an investor in Europe can gain broad and diverse exposure to NDX components that, in addition to technology, also feature sector stalwarts like Starbucks, Marriot and Costco. While investing in individual Nasdaq-100 stocks would be a more challenging prospect, a local NDX-tracking ETF like the type Lyxor lists on the Euronex exchange in Paris allows investors to make the most of their investment dollar—or Euro in this case.
  • Increased liquidity, decreased costs: A locally listed NDX-associated ETF can help investors find cost-effective access to overseas securities if fees for actively managed funds hamper them. At the same time, a local ETF grants traders liquidity to buy and sell as they would any other stock, freeing them from potential bureaucracy involved with managed money.

Traders aren't the only ones to benefit from newfound access to US-listed stocks and ETFs. Exchanges want to offer as many instruments as possible to generate local interest and trading activity, and debuting Nasdaq Index-linked products could potentially net them profits and profile. This can make a big impact even for an exchange with a pedigree like the JSE. The Nasdaq-100 is the looked-to index, and becoming a local beacon of access confers a number of advantages on exchanges and fund partners that team with Nasdaq.

Technology is rarely just technology anymore. Amazon isn't solely an e-commerce site, but also a national grocer and the largest cloud services provider in the world. Technology has become intertwined with nearly all facets of daily life, and has improved many aspects of it around the world. Nowhere are those gains more apparent than in the performance of the Nasdaq-100 index and its underlying components. Foreign investors hungry to gain exposure to these movers and shakers need local exchanges to list the products that can meet that demand. When asset managers and exchanges partner with Nasdaq to bring NDX and thematic ETFs to their local markets, the benefits can be felt by all.
 

Nasdaq® is a registered trademark of Nasdaq, Inc. The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. Neither Nasdaq, Inc.  nor any of its affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Statements regarding Nasdaq-listed companies or Nasdaq proprietary indexes are not guarantees of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investors should undertake their own due diligence and carefully evaluate companies before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.
© 2018. Nasdaq, Inc. All Rights Reserved.