Northern Trust has acted as administrator and custodian for National Bank of Abu Dhabi as it made a series of enhancements to the region’s first exchange-traded fund, including moving from swap based replication to physical replication.
The ETF, which also shifted from index provider Dow Jones UAE 25 Total Return Index (Local) to the MSCI UAE IMI 10/40, is now named NBAD OneShare MSCI UAE ETF and is the first physically replicated fund in the Emirate.
“We have enhanced our ETF following consultations with a number of international authorised participants and in response to a strong demand for physical replication,” says Saleem Khokhar, head of equities at National Bank of Abu Dhabi’s asset management group. “We believe physical replication will increase scalability and remove restrictive collateral requirements and are pleased to work with Northern Trust who, through their depth of expertise and experience in ETF administration could support our sophisticated administrative requirements, enabling us to continue to provide the best in class investment product to our investors.”
ETFs mimic the returns of a benchmark index. Physical replication occurs when the ETF manager purchases the underlying assets of the index. It differs from synthetic or swap based replication where the ETF manager enters a swap contract with a third party that agrees to pay the index return in exchange for a small fee and any returns on collateral held in the ETF portfolio.
“The dynamics of ETFs are different from other fund types,” says Liam Butler, head of ETF fund administration, Europe Middle East and Africa at Northern Trust. “We can offer a variety of ETF administration solutions to support our client’s unique requirements for transparency and reporting, and are delighted to continue to work with National Bank of Abu Dhabi supporting the enhancements to this landmark ETF.”
Northern Trust has been working with National Bank of Abu Dhabi since the launch of its ETF, the NBAD One Share Dow Jones UAE 25 ETF (1UAE), in 2010.