Vertex exchange traded fund’s path after IPO

TANZANIA’S first equity Exchange Traded Fund (ETF) merits a supportive “yes” at IPO. A measured subscription is both an investment and a vote for a deeper market in which households can own a diversified slice of listed companies with a single trade.

For first-time investors, the ETF offers a cleaner entry than stock-picking and the routine of watching an indicative NAV (iNAV) encourages attention to execution quality, premiums/discounts and fees.

In the first six months, treat participation as marketbuilding: Reinvest dividends to smooth early volatility and use limit orders near iNAV so you are not chasing gaps on thin days. Those benefits arrive with early-market frictions that investors should expect and the sponsor should fix.

Total costs are about 1.30 per cent—more unit-trust than ETF—which should glide toward 0.75–0.85 per cent within 18 months, with a published timetable immediately after listing. Liquidity is uneven across underlying counters and settlement remains T+3, so the ETF cannot be more liquid than the securities it holds; that is precisely why disciplined order placement matters.

Structure also matters: Launching with a single Authorised Participant (AP) concentrates risk and blurs roles between managing the product and making the market. None of this is fatal, but each point requires a dated, measurable remedy.

Price discipline starts with the intraday control mechanism. A +/- 5 per cent band around iNAV is designed to prevent drift from fair value; In thin conditions, however, it can harden a premium or discount when creations/redemptions are not flowing.

ALSO READ: Pigeon pea output projected to reach 400,000 tonnes

The practical goal is to evolve from a hard cap into a market that naturally trades near iNAV because arbitrage lanes are open, basket files are published and multiple APs compete. Progress is easy to verify: Target an average premium/ discount of 1.5 per cent or less over rolling three-month windows and quoted spreads of 2.0 per cent or less during core hours.

Portfolio balance is the next step post IPO. Lookthrough exposure can concentrate risk if an investment company in the basket is itself heavily tilted to the largest bank, effectively doubling that bet rather than diversifying it.

Make the concentration tangible for investors: Publish a quarterly look-through table and cap any singleissuer exposure at roughly 25–30 per cent until market breadth improves. For names with thin trading or modest disclosures, use transitional weights that step up as turnover and transparency improve.

The aim is not to penalise incumbents but to build a resilient core that can credibly serve as a household savings benchmark. With that context, investors should subscribe with a plan they can stick to.

Retail savers can scale in through small, regular buys—say 100,000/- —using limit orders near iNAV and keeping a cash buffer to avoid forced sales on soft days. Institutions should seed a core position, add on a calendar and—where policy allows—lend inventory to support tighter spreads. Everyone should monitor the same three dials: Average premium/discount to iNAV, quoted and effective spreads and creation/redemption frequency and size.

Because settlement is T+3, these dials will not improve overnight, but steady month-by-month gains signal a maturing product. For the sponsor, transparency converts intention into operations.

Provide daily iNAV with timestamps and methodology, full holdings with look-through, a monthly liquidity report detailing turnover and any AP interventions and monthly tracking statistics—tracking difference and tracking error—so subscribers can judge precision.

By the end of the first quarter, publish a five- to ten-year back-test with stress episodes—a shilling shock, a liquidity drought and an inflation spike—plus a forwardlooking one-way-flow scenario.

At month six, release the first tracking-difference scorecard, confirm the initial fee step-down on the glidepath and have a second AP live with documented activity. By month twelve, deliver at least two independent APs active in practice, fees trending toward 0.75–0.85 per cent and routine publication of the transparency pack.

Good plumbing needs governance to endure. Separate product management from market-making economics by appointing independent APs with explicit quoting obligations during core hours; As a baseline, APs should quote within ±1.5 per cent of iNAV with predefined size to anchor spreads.

ALSO READ: Taxpayers welcome 100pc waiver on penalties, interest

Establish a small investor advisory panel—two institutional investors, one retail representative and one independent market-microstructure expert—to review premiums, spreads and tracking each quarter and publish a short note. Where incentives could diverge between the sponsor as manager and any affiliated market-making, disclose the potential conflicts clearly.

If performance fees exist, they should only reward improvements in tracking difference, never asset growth. Education determines whether this launch scales beyond a niche. Run a twotrack programme. One track covers mechanics and risks— how iNAV is calculated, how to use limit orders, how to read premiums/discounts and how the ±5 per cent band behaves in practice.

The other is a product briefing on sector mix, dividend policy and rebalance cadence. Keep sales pitches out and evidence in. Publish recordings and a one-page “first 30 days” checklist so new savers start confidently and avoid common mistakes. Set contingencies so the market knows what happens if progress stalls.

If the three dials—premium/discount, spreads and creation/redemption cadence—miss targets for two consecutive months, trigger a liquidity plan: Extend creation windows, allow temporary cash-in-lieu for hard-to-source names and rotate AP responsibilities to reopen arbitrage.

If lookthrough caps are breached, rebalance promptly to restore single-issuer exposure to the 25–30 per cent band and disclose the corrective actions. Against familiar bond offers from government, corporates, banks and utilities, the ETF is a stronger “liquid growth” sleeve for many savers. Bonds supply coupon certainty but often come with lock-ups, early-exit penalties, thin secondary markets and reinvestment risk at maturity.

The ETF, by contrast, trades daily with transparent prints, diversifies away from single-name credit risk and can pass inflation through earnings and dividends over time; Dividends can compound rather than be redeployed at uncertain rates. Keep high-quality bonds as the “sleep-at-night” anchor and let the ETF handle the flexible, inflation-aware, total-return work.

If the market meets its twelve-month marks—fees trending toward 0.75–0.85 per cent, average premium/ discount near 1.5 per cent or less, spreads around 2.0 per cent or less, at least two active APs and consistent monthly reporting—the ETF will graduate from a brave first to a genuine benchmark.

At that point it will not only outperform many bond alternatives on liquidity, transparency and long-run return potential; It will also anchor balanced portfolios that pair a flexible equity core with the stability of high-quality fixed income.