Private placement of the maiden ETF from 12 February

Private placement of the country's maiden exchange-traded fund (ETF) "LB Multi Asset Income ETF" will start on 12 February and end on 28 February, according to LankaBangla Asset Management Company, the asset manager of the new instrument.

According to the regulatory approval documents, at least half of the targeted Tk100 crore fund would be raised from private placement at face value of the ETF units, while the sponsor LankaBangla Investments already subscribed to units worth Tk10 crore in addition to that of Tk2 crore by the asset manager itself.

The remaining units worth not more than Tk38 crore would be offered to the public market investors in an initial public offering (IPO) that is expected to start after the private placement phase, said the asset manager.

The private placement will be held through the electronic subscription system platform by the bourses.

ETFs are hybrid investment products, with many of the investment features of mutual funds. Like mutual funds, an investor buys ETF units to own a proportional interest in the pooled assets, which are generally managed by an asset manager for a fee.

However, unlike non-listed mutual funds, ETF units are traded in the bourses so that they can be bought and sold through brokerage accounts.

ETFs have been available as an investment product for a little more than 20 years in the United States. The first ETF—a broad-based domestic equity fund tracking the S&P 500 index—was introduced in 1993.

According to the awareness creation notes by the asset manager, the global ETF market witnessed a compound annual growth of 8.5% over the last 20 years and the size of the global ETF market was $10.6 trillion in 2023. There are currently 190 listed ETFs with an asset under management of RS6,358 billion in the neighbouring country India.

LB Multi Asset Income ETF will be actively managed, which means the asset manager will have discretion to select the constituents of the fund portfolio, unlike the passively managed ETFs where the fund portfolio is made of the constituents of a pre-announced index.

The objective of the fund is to outperform the yield of 10-Year Bangladesh Government Bonds.

Bangladesh General Insurance Company will act as trustee of the fund and BRAC Bank will act as the custodian.

The authorised participants are LankaBangla Securities Limited, Green Delta Securities Limited and United Financial Trading Company Limited. Authorised participants are required by law to participate in arbitrage opportunities to ensure that price difference between the net asset value per unit at current market prices of the underlying securities and the ETF unit price at the secondary market ETF does not exceed 10%.

The Dhaka Stock Exchange (DSE) and LankaBangla Asset Management together held an awareness session on the ETF on Tuesday, attended by broker-dealers and market professionals.

The ETF units will be traded on the DSE.