Chantal Marx
FNB to list sixteen new single-stock ETNs this month
For South African investors, globally diversifying a portfolio by obtaining international assets has become crucial in enhancing portfolio return and reducing overall portfolio risk. With the cost and complexities attached to investing offshore in mind, FNB listed several single-stock exchange-traded notes (ETNs) on the Johannesburg Stock Exchange (JSE) in 2020 that have opened a new avenue of gaining offshore exposure for local retail investors. At the end of April 2024, FNB listed an additional eight ETNs, covering four prominent names, being Nvidia, Eli Lily, Palo Alto, and Booking Holdings.
Investors can now look forward to exposure to even more major offshore companies, sectors and geographies with ETNs tracking a further eight single-stock ETNs listing this month. The new stock exposures are:
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Blackrock (BRETNC/BRETNQ): BlackRock is a multinational investment management company. It is the largest asset manager in the world, offering both institutional and retail investors a wide range of financial products and services. The stock is trading in line with its average rating over time, on a relative basis. It rightly commands a premium valuation to pe
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Broadcom (BCETNC/BCETNQ): Broadcom has been a beneficiary of the Artificial Intelligence (AI) thematic that has dominated the US stock market over the two years. The company designs, develops, and supplies a broad range of semiconductor, enterprise software, and security solutions. Solutions include service provider and enterprise networking and storage, mobile device and broadband connectivity, mainframe, cybersecurity, and private and hybrid cloud infrastructure. In line with other AI players, Broadcom's share price performed exceptionally well in 2023 and 2024, but we have seen it retreat more recently (a function of pressure on the sector more broadly). The stock is still trading slightly above the upper end of its longer-term fair value range.
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Airbnb (BBETNC/BBETNQ): Launched in 2008, Airbnb operates an online marketplace for travel information and booking services. From cozy cottages to elegant penthouses, hosts and travellers across the globe are brought together through short or long homestays and experiences. The company has shown a strong performance post-Covid but after a recent sell-off is trading on undemanding multiples relative to history.
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Walt Disney Co (WDETNC/WDETNQ): Disney is an American multinational mass media and entertainment conglomerate. It operates three core business segments: Disney Entertainment (including its studios and Disney+ streaming platform), ESPN, and Disney Experiences (mainly theme parks and cruises). Disney struggled post-Covid as high interest rates and inflation eroded consumer wallets, and its streaming platform required significant investment. The current valuation is not viewed as demanding given that streaming is set to continue seeing an improvement in profitability and the company is benefitting from major interventions in its Entertainment businesses, with continued growth expected from Experiences.
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Palantir (PTETNC/PTETNQ): Palantir specialises in advanced software solutions used to analyse and engineer large-scale data sets, ultimately helping customers to understand and find insightful solutions to complex challenges. The company, which was founded in 2003, was initially focused on government work (particularly for intelligence and defence purposes), but has since expanded into the commercial space, serving clients across industries including Financial Services, Healthcare, and Manufacturing. The company has also seen spectacular growth on the back of AI adoption and its share price has followed suite. Despite a recent sell-off, it still looks expensive looking at current multiples, although substantial new contract wins could alter the earnings outlook quite meaningfully given that its client book is still quite small.
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LVMH (LVETNC/LVETNQ): In 1987 Louis Vuitton and Moët Hennessy merged creating the LVMH Group. As a family-run group, LVMH strives to ensure the long-term development of each of its Houses in keeping with their identity, heritage, and expertise. LVMH is home to 75 distinguished Houses rooted in six different sectors. The company produces and sells Wines and Spirits, Fashion and Leather Goods, Perfumes and Cosmetics, Watches and Jewellery, and Selective Retailing. The stock price has been under pressure over the last couple of years amid a broader luxury goods market downturn driven by softness in the Chinese economy. There are signs that negative momentum in the sector is softening and an improvement in China's growth could see a step-change in luxury goods consumption medium term. The stock looks attractively priced considering current valuation multiples relative to its history.
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ASML (ASETNC/ASETNQ): ASML develops, produces, and markets semiconductor manufacturing equipment, specifically machines to produce chips through lithography. Nearly 85% of its revenue comes from chip manufacturers in Asia and its customers include the world's biggest chipmakers. Exposure to ASML will provide an investor with an investment in the "top of the feeding chain" as many of the most advanced chips used in AI applications are produced using ASML's machines. ASML currently trades on a forward PE of 26 times - well below its average rating over time
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Novo Nordisk (NNETNC/NNETNQ): Much of Novo's growth in the last decade has been fuelled by its expertise in insulin and glucagonlike peptide -1 (GLP-1) receptor agonists (semaglutide), marketed under the brand names Ozempic and Wegovy. Originally introduced as a treatment for type 2 diabetes to help patients manage their blood sugar levels, it has been successfully used for weight loss as well. This has boosted the group's performance amid insatiable demand, with the medium-term earnings growth outlook still anticipated to be very strong. The stock is trading on a forward PE multiple of 18 times, which seems very cheap relative to its own history and represents a much smaller than average premium to peers.
Unpacking ETNs
An ETN is a type of security issued by a financial institution. It tracks the value of a basket of shares or individual shares. The ETN's price fluctuates based on the underlying instrument's performance. For example, if an LVMH ETN is purchased, the price of the ETN will increase based on the performance of the LVMH share itself.
Investors do not physically own any shares; however, they obtain exposure to the company's performance based on the fluctuating ETN price. The better the company performs, the higher the price of the ETN and the more profit investors will make.
Each company can be accessed through a "Compo" option - which tracks the rand-based share price, and "Quanto" option - which tracks the US dollar-based share price. The Compo share price will reflect the movements of the rand relative to the dollar and will outperform the Quanto option when the rand is weakening and underperform during periods of rand strength.
Advantages of ETNs:
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As the ETN is listed on the JSE, investors can obtain immediate access to international shares through the instrument without having to take funds offshore and comply with tax thresholds.
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Broadcom (BCETNC/BCETNQ): Broadcom has been a beneficiary of the Artificial Intelligence (AI) thematic that has dominated the US stock market over the two years. The company designs, develops, and supplies a broad range of semiconductor, enterprise software, and security solutions. Solutions include service provider and enterprise networking and storage, mobile device and broadband connectivity, mainframe, cybersecurity, and private and hybrid cloud infrastructure. In line with other AI players, Broadcom's share price performed exceptionally well in 2023 and 2024, but we have seen it retreat more recently (a function of pressure on the sector more broadly). The stock is still trading slightly above the upper end of its longer-term fair value range.
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Percentages of shares can be bought, meaning that should you have R1 000 to invest, you can still obtain exposure to LVMH even though you don't have enough capital for one whole share.
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Investors can decide if they want access to currency risk through a dollar-based ETN or would prefer to hedge that risk through a rand-based ETN.
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Diversification benefit.
Risks of ETNs:
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The risks attached to investing in ETNs are the same as when investing in the shares directly - you will be exposed to capital volatility attached to the underlying performance of the company and general market sentiment.
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Investing in rand-based ETN's may see investors lose out on the benefits attached to rand depreciation; on the flip side the dollar-based ETNs will underperform during periods of rand strength.
