Staff Writer
HARARE: First Mutual Wealth (FMW) is positioning its Gold Exchange Traded Fund (ETF) as a strategic investment vehicle for pension funds, leveraging regulatory allowances for offshore exposure while offering a diversified, inflation-hedged asset class.
According to the FMW prospectus, the product has been deliberately structured to align with guidelines set by the Insurance and Pensions Commission (IPEC), which in August 2021 and March 2022 permitted pension funds to allocate up to 15% of their investable assets to offshore markets.
This regulatory shift has opened a window for institutional investors seeking to hedge against domestic macroeconomic volatility.
FMW said its Gold ETF was designed with these thresholds in mind, ensuring compliance with both offshore investment rules and portfolio concentration limits.
“FMW has thus considered the Insurance and Pensions Commission’s guidelines on offshore investments when designing the FMW Gold ETF,” reads the prospectus.
The fund’s structure also reflects global best practices by anchoring part of its exposure on the Johannesburg Stock Exchange (JSE), a bourse recognised under international regulatory frameworks.
“The Johannesburg Stock Exchange is a member of the World Federation of Exchanges and subscribes to the regulators registered under the International Organization of Securities Exchanges which is a requirement for offshore investments to only purchase securities that are listed and regulated by such exchanges,” the prospectus notes.
To manage concentration risk, the fund imposes strict limits on exposure to individual equities.
“The FMW Gold ETF product design complies with this requirement as the rebalancing will ensure that exposure to any of the listed gold mining companies will be limited to 12.5% through the rebalancing of the portfolio every quarter,” FMW said.
In line with IPEC’s asset allocation requirements, the ETF maintains a balanced composition between equities and commodities.
“Listed company equities will constitute 50% of the fund whilst 50% will be invested in a commodity in the form of the 1invest Gold ETF,” the prospectus states, ensuring that total exposure to listed equities remains within the 60% cap.
FMW believes this structure makes the product particularly suitable for pension funds seeking offshore diversification.
“FMW believes that this FMW Gold ETF can be a viable avenue for pension funds to gain offshore exposure by applying directly for the purchase of these securities should local liquidity prove insufficient,” reads the document.
Beyond institutional investors, the ETF is also designed to broaden participation among retail investors, particularly in a market characterised by inflationary pressures and currency instability. Zimbabwe’s history of currency volatility has driven demand for alternative stores of value, with gold emerging as a preferred hedge.
The prospectus highlights strong market interest in gold-linked products, citing the uptake of physical gold coins introduced by monetary authorities. However, accessibility has remained a challenge.
“It was however reported that despite retail interest in the Gold Coins, few retail investors could participate given that the cost of each Gold coin (each weighing 1 ounce) was prohibitive for retail investors,” FMW said.
The ETF aims to address this barrier by lowering the entry threshold. “FMW believes that the FMW Gold ETF can have an offshore appeal to retail investors as the number of ETF units that will be issued will allow retail investors to gain gold asset exposure in offshore markets,” the prospectus adds.
Increased retail participation is also expected to improve market efficiency. “As retail investors participate, this will likely enhance the price discovery mechanism of the FMW Gold ETF on the VFEX given a more cost-efficient trading cost framework on the exchange,” FMW said, noting that the product supports broader financial inclusion goals.
From an investment perspective, the ETF offers several benefits, chief among them diversification. The prospectus notes that gold typically behaves differently from traditional asset classes.
“Unlike traditional assets like stocks and bonds, gold often moves independently of these markets… providing a safety net for the overall portfolio.”
The fund also serves as a hedge against inflation, with half of its portfolio allocated to gold. “As the cost of goods and services increases, the value of gold tends to rise. Therefore, investing in the FMW Gold ETF can protect the purchasing power of the investment,” the document states.
Additionally, the ETF provides indirect protection against regional currency fluctuations. “The assets in the FMW Gold ETF are strongly linked to the USD price of Gold notwithstanding their listing on the VFEX and underlying asset listing on the JSE,” FMW said.
Liquidity is another key feature of the product. By listing on the Victoria Falls Stock Exchange (VFEX) while maintaining links to the JSE, the ETF enables cross-market trading.
“Should the VFEX be unable to find adequate bids for sellers locally, the FMW Gold ETF units can still be sold on the JSE and proceeds remitted back in hard currency for settlement with the local seller,” the prospectus explains.
However, FMW cautions that the ETF is not without risks. Commodity markets are inherently volatile, influenced by global economic conditions, geopolitical developments, and supply-demand dynamics.
“This volatility can lead to significant price fluctuations in the FMW Gold ETF, potentially resulting in losses for investors,” the prospectus warns.
Price risk is another concern, particularly given gold’s sensitivity to political and economic shifts. Regulatory and policy changes can also impact performance, underscoring the importance of a long-term investment horizon.
The fund will maintain its strategic asset allocation through periodic rebalancing. “When the weighting ceases to reflect the objective weighting, rebalancing occurs which involves, among other things, selling or buying the overweight security(ies)… necessary to rebalance the portfolio,” FMW said.
With its compliance-driven structure, dual-market exposure, and focus on gold as a defensive asset, the FMW Gold ETF is emerging as a compelling option for pension funds navigating Zimbabwe’s evolving investment landscape, while also opening the door for broader market participation.
