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Funds venturing into Africa

FUNDS: If you scratch beneath the surface there are a number of ways to get exposure to Africa's investment stories.
July 27, 2009

Accessing Africa's growth stories remains a quandary for many investors, but there a number of funds offering concentrated to broad-based exposure to the continent's investment opportunities.

Local knowledge, local presence

Mention investing in Africa and the name 'Investec' immediately pops up. Having run African assets for over 18 years, the asset manager benefits from local knowledge and a global presence.

The group's offering to UK retail investors includes the Investec Middle East and North Africa fund, available as an offshore fund domiciled in Luxembourg, and the Investec Africa and Middle East Fund, available both as an OEIC structure or as an offshore fund. The Africa and Middle East Fund, which was recently added to the Hargreaves Lansdown Vantage platform, aims to achieve long-term total return by investing across the entire African continent, including South Africa and the Middle East.

Launched on 2 June last year, the fund's timing was unfortunate, as demand for frontier markets evaporated following Lehman's collapse. Despite slow inflows, fund manager Roelof Horne remains positive, saying that the fundamentals in Africa remain uncorrelated to the developed world.

Mr Horne says the fund benefits from its exposure both to Africa and the Middle East, as the two regions fit in well together under the frontier market's banner, with the liquidity risk of African stocks mitigated by the fund's Middle East exposure.

Despite a huge sell-off of frontier markets towards the end of 2008, the fund's performance has picked up since March this year, and Mr Horne believes that the fund will be able to claw back the losses made in 2008 by the end of this year.

Beyond borders

Dean Cheeseman, head of multi-manager at F&C asset managers, believes that there are too few Africa funds to properly diversify oneself into this type of strategy. That said, the last few years have born witness to the launch of a number of offshore funds offering exposure to Africa's growth stories. It is, however, important to bear in mind the caveats that go along with offshore funds such as currency risk, the absence of financial compensation should something go wrong, and in some cases limited regulation.

The Standard Africa Equity Fund, managed by STANLIB, is an Ucits-compliant (Undertakings for Collective Investments in Transferable Securities) fund domiciled in Dublin and based in US dollar with a minimum investment requirement of $50,000.

The second quarter of 2009 saw the fund rising by 26.5 per cent. "African equity markets staged a substantial recovery during the second quarter of the year, reversing most of the declines sustained during the first quarter," comments fund manager Stephane Bwakira. He says that despite the volatility in Africa's stock markets, the continent's economic growth during the downturn is proving to be resilient.

Other offshore offerings with an African link include the Coronation Africa Fund and Coronation Africa Frontiers Fund, launched by Cape Town-based Coronation Fund Managers in the latter part of 2008.

The two funds share a similar investment objective - to deliver capital growth through a focus on stock picking - with both offering investors access to the best opportunities in African markets. The Frontiers Fund, however, excludes South Africa from its remit.

Listed on the Irish Stock Exchange and based in dollars, both funds are Ucits-compliant and require a minimum investment of $15,000 each.

Currently, both funds are overweight Nigeria, where the two fund managers - Peter Leger and Peter Townshend, favour brewers and retailers for their long-term growth potential. Going forward, the two managers hope to build both funds' exposure to Ghana and Morocco.

Specialist emerging markets investment manager Charlemagne Capital's Magna Africa Fund, Ucits compliant and domiciled in Dublin, Ireland, seeks capital appreciation through a portfolio invested primarily in African Securities, with the majority of holdings in South Africa, Nigeria and Egypt. Launched in March 2007, Charlemagne Capital added a sterling share class to the fund in September of the same year in response to investor demand.

On the closed-ended side, The Africa Opportunity Fund, incorporated in the Cayman Islands and traded on the Alternative Investment Market of the London Stock Exchange, seeks to earn capital growth and income through value, arbitrage, and special situations investments in the continent. Portfolio investments include equity, debt, and other interests in both listed and unlisted assets.

The fund invests in companies with minimal debt and little need to access the capital markets, with a particular emphasis on goods and services in short supply in Africa. The fund's latest report reads: "Market leading, cash-generative businesses are trading at historically low valuations, and where we find companies offering a single-digit price/earnings ratio, significant free cash flow and a secure market position, we will look to deploy risk capital."

For the ultra high-net-worth investor, boutique investment house Thames River recently launched the Thames River Africa Focus Fund. A multi-manager portfolio, the fund is aimed at achieving a target net return of 15 per cent plus per annum through exposure to multiple investment strategies across all African and Middle Eastern markets. The minimum investment you will have to fork out is €/$100,000 or the pound equivalent thereof.

Duet Group's Africa Opportunities Fund, born out of the New Star Heart of Africa Fund's assets, requires a minimum investment of $1m, but the company has not ruled out opening a retail version for UK investors in the near future, and according to the fund manager, retail investors who understand the risks associated are welcome to invest smaller amounts into the fund.

A broader mandate

Investors nervous about putting their capital into a continent which for many evokes images of war, famine and poverty, could opt for a fund with a broader mandate.

Here Fidelity's Emerging Europe Middle East and Africa fund is a firm favourite with more than half the portfolio invested in African equities. The fund has managed to deliver an impressive performance since its launch in January last year inspite of difficult market conditions.

Other funds tapping into the region include JP Morgan Emerging Europe Middle East & Africa Fund, and the T Rowe Middle East and Africa Equity fund, but domiciled in Luxembourg and Ireland, respectively, these funds come with currency risk attached.

Still not convinced? Then it might be worth buying a broader emerging markets fund like the Ignis Hexam Global Emerging Markets fund or the Lazard Emerging Markets fund - both currently hold some exposure to Africa.

Investment trusts with exposure to the continent include the JP Morgan Emerging Markets trust, which holds a 12 per cent exposure to South Africa, and the BlackRock World Mining fund. which holds around 11 per cent in South African equities and has a 6 per cent exposure to Zambia.

Alternatively, opt for an exchange-traded fund (ETF). While there is no Pan Africa ETF listed on the London Stock Exchange, funds such as the db x-trackers MSCI EM EMEA ETF offer exposure to South Africa (35 per cent of index), Egypt (2.75 per cent) and Morocco (2 per cent) and the other emerging economies of Europe. Lyxor's ETF South Africa (FTSE JSE 40) tracks the performance of the 40 largest stocks listed on the Johannesburg Stock Exchange.

INVESTEC AFRICA AND MIDDLE EAST FUND
PRICE89.52pSHARPE RATIOn/a
SIZE OF FUND£11.7m3 MTH  PERFORMANCE13.89%
NO. OF HOLDINGS416 MTH PERFORMANCE30.15%
SET UP DATE02-Jun-08PERFORMANCE TO DATE14.87%
MANAGER START DATE02-Jun-08TOTAL EXPENSE RATIO1.61%
BETA34YIELD1.32%
VOLATILITY3.38MINIMUM INVESTMENT£1,000
TRACKING ERRORn/aMORE DETAILSwww.investecassetmanagment.com

Source: Investec, www.ft.com/funds

Top holdings

HoldingPercentage
Access Bank Nigeria Plc7.8%
Benue Cement Co Plc5.8%
Arabtec Holding Co4.0%
Standard Bank Group Ltd3.8%
Orascom construct. Industries3.7%

Geographical breakdown

RegionPercentage
Nigeria25.1%
Egypt18.0%
South Africa16.7%
Qatar13.4%
United Arab Emirates11.6%
United Kingdom3.8%
Tunisia3.2%
Oman3.1%
Kenya0.9%
Cash4.2%

INVESTEC MIDDLE EAST AND NORTH AFRICA FUND
PRICEUS$14.523 MTH  PERFORMANCE17.48%
No OF HOLDINGS 6 MTH PERFORMANCE47.86%
SET UP DATE10-Oct-08PERFORMANCE TO DATE21.71%
MANAGER START DATE10-Oct-08TOTAL EXPENSE RATIO2.67%
TRACKING ERRORn/aMINIMUM INVESTMENTUS$3,000
 MORE DETAILSwww.investecassetmanagment.com

Source: Investec, www.ft.com/funds

Top holdings

HoldingPercentage
Qatar Electiricy & Water Co4.5%
National Societe General Bank4.5%
Arabtec holdng Co4.3%
First Gulf Bank4.3%
Hikma Pharmaceutic4.0%

Geographical breakdown

RegionPercentage
Egypt27.8%
Qatar15.3%
United Arab Emirates15.0%
Oman4.6%
United Kingdom4.0%
Tunisa3.4%
Morocco3.3%
Jordan2.9%
Others 2.9%
Cash20.8%

CORONATION AFRICA FUND
PRICEUS$ 10.233 MTH  PERFORMANCE37.60%
No OF HOLDINGS 6 MTH PERFORMANCE26.80%
SET UP DATE01-Aug-08PERFORMANCE TO DATE0.20%
MANAGER START DATE01-Aug-08MAXIMUM INITIAL CHARGE5.00%
VOLATILITY MINIMUM INVESTMENTUS$15,000
TRACKING ERRORn/aMORE DETAILSwww.coronation.com

Source: Coronation Fund Managers, Morningstar

Sector breakdown

SectorPercentage
Consumer Goods25.7%
Financials21.5%
Telecommunications16.7%
Basic Materials12.2%
Consumer Services7.7%
Cash6.5%
Industrials5.5%
Oil & Gas2.6%
Technology1.6%

Geographical breakdown

RegionPercentage
South Africa42.7%
Nigeria16.9%
Egypt11.8%
Kenya9.6%
Cash6.5%
Zambia4.4%
Maurituis3.3%
Sub-Sahara2.8%
Zimbabwe1.9%

MAGNA AFRICA FUND
PRICE7.43pTOTAL EXPENSE RATIO2.31%
SIZE OF FUNDEURO 32.5m3 MTH  PERFORMANCE19.59%
SET UP DATE01-Mar-076 MTH PERFORMANCE40.36%
MANAGER START DATE01 March 2007PERFORMANCE TO DATE23.95%
BETA1.07MINIMUM INVESTMENT£10,000
VOLATILITY6.84MORE DETAILSwww.charlemagnecapital.com/

Source: Charlemagne Capital, www.ft.com/funds

Top holdings

HoldingPercentage
MTN9.5%
Absa7.6%
Naspers6.4%
CIB5.8%
Telecom Egypt5.8%

Geographical breakdown

RegionPercentage
South Africa56.0%
Egypt18.0%
Nigeria11.0%
Kenya9.0%
Mozambique3.0%
Zambia2.0%
Others1.0%

FIDELITY EMERGING EUROPE MIDDLE EAST AND AFRICA
PRICE87.94pSHARPE RATIOn/a
SIZE OF FUND€ 345.603 MTH  PERFORMANCE16.20%
No OF HOLDINGS786 MTH PERFORMANCE39.81%
SET UP DATE14-Jan-08PERFORMANCE TO DATE30.17%
MANAGER START DATE14-Jan-08TOTAL EXPENSE RATIO1.79%
BETA0.97YIELD0.81%
VOLATILITY5.98MINIMUM INVESTMENT£1,000
TRACKING ERRORn/aMORE DETAILSwww.fidelity.co.uk

Source: Fidelity, www.ft.com/funds

Top holdings

HoldingPercentage
MTN Group Ltd7.83%
Lukoil Company7.15%
Gazprom4.61%
AngloGold Ashanti Limited4.37%
Shoprite Holding Limited23.07%

Geographical breakdown

RegionPercentage
Africa55.76%
Europe - Emerging32.85%
Middle East5.39%
Asia - Emerging2.53%
UK2.23%

AFRICA OPPORTUNITY FUND LTD
PRICEUS$0.54PRICE DISCOUNT TO NAV-28.60%
SIZE OF FUND$21.8m3 MTH PERFORMANCE (in $)47.30%
SET UP DATE20076 MTH PERFORMANCE67.69%
BETA0.22PERFORMANCE TO DATE-29.68%
VOLATILITY16YIELD5.10%
MORE DETAILS www.africaopportunityfund.com/

Source: Africa Opportunity Fund Ltd, Datastream

Top holdings

HoldingPercentage
Sonatel15.9%
African Bank Investments Limited9%
Ivory Coast domestic bonds8.1%
African Development Bank Tanzanian shilling bond7.7%
Gold Fileds7%

Geographical breakdown

RegionPercentage
South Africa21%
Senegal16%
Cash16%
Ivory Coast11%
Nigeria10%
Angola9%
Tanzania8%
Zambia2%