5 Reasons To Invest In Africa

July 16, 2014

There are four U.S.-listed ETFs tracking African equities—one that canvasses the entire continent and the others single-country-targeting South Africa, Nigeria and Egypt. They are:

  1. AFK is a fund that covers stocks all around the continent—from North Africa to big countries in sub-Saharan Africa to South Africa
  2. It has gained almost 19 percent in the past year
  3. AFK has an annual expense ratio of 0.81 percent, or $81 for each $10,000 invested.
  4. It has $127.7 million in assets under management
  5. It includes companies that derive at least half of their revenues in Africa, meaning it holds companies domiciled in non-African countries. But its top three country holdings are South Africa, Egypt and Nigeria

These are precisely the very countries that are the focus of the three single-country securities noted above. These three single-country securities are:

  1. EZA has gained more than 18 percent in the past year
  2. EZA is a fund that with its top three sector weightings in financials (27 percent); basic materials (almost 21 percent); and technology (more than 15 percent)
  3. EZA has an annual expense ratio of 0.61 percent
  4. It has more than $575 million in assets under management
  1. NGE has gained almost 11 percent in the past year
  2. NGE is a fund that with its top three sector weightings in financials (37 percent); energy (almost 29 percent); and consumer non-cyclicals (20.55 percent)
  3. NGE has an annual expense ratio of 0.68 percent
  4. It has $20 million in assets under management
  1. It has gained more than 55 percent in the past year
  2. EGPT is a fund that with its top three sector weightings in financials (almost 37 percent); telecommunications (almost 18.27 percent); and energy (more than 17 percent)
  3. EGPT has an annual expense ratio of 0.98 percent
  4. It has $71 million in assets under management

3_Africa_ETF_Returns

Chart courtesy of StockCharts.com

Looming Risks

However, there are near-term risks in Africa to consider, including the rolling out of tighter monetary policy. An inflation target and more exchange rate flexibility is needed. There is also a vulnerable greater fiscal debt situation, especially in the countries that rely on foreign capital inflows.

Arthur Childs warned that only clients with a higher risk appetite and a long-term horizon should consider investing a maximum of 3 to 6 percent of their portfolio in Africa.

“It will hopefully be clear from what has been said that investors with a very cautious attitude to risk or whose capacity for loss is small should not consider investing any of their money in an Africa fund, or indeed in an emerging market fund,” Childs wrote.

 

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