The US investment community is waking up to the African growth story. As a result, an increasing number of mutual funds and ETFs now boast significant African stock holdings.
But Africa is not a country. It’s a diverse continent with a myriad of different cultures, leaders, resources, and economies.
So, I thought it might be helpful to dig into these US funds’ portfolios to determine where exactly they are placing their bets.
Investing in the Sub-Sahara
The table below lists 11 funds ranked according to their degree of sub-Saharan African exposure.
| Fund Name | Ticker | Sub-Saharan Weight | Portfolio Date |
|---|---|---|---|
| iShares MSCI South Africa Index | EZA | 100.0% | 11/13/12 |
| SPDR S&P Emerging Middle East and Africa | GAF | 91.3% | 11/13/12 |
| Commonwealth Africa Fund | CAFRX | 84.6% | 7/31/12 |
| Nile Pan Africa Fund | NAFAX | 84.5% | 6/30/12 |
| Market Vectors Africa Index ETF | AFK | 59.2% | 11/13/12 |
| T. Rowe Price Africa & Middle East | TRAMX | 46.2% | 7/31/12 |
| Wasatch Frontier Emerging Small Countries Fund | WAFMX | 32.4% | 6/30/12 |
| Templeton Frontier Markets | TFMAX | 23.2% | 6/30/12 |
| HSBC Frontier Markets Fund | HSFAX | 17.5% | 9/30/12 |
| iShares MSCI Frontier 100 Index Fund | FM | 15.5% | 11/14/12 |
| Harding Loevner Frontier Emerging Markets Portfolio | HLMOX | 14.5% | 4/30/12 |
To me, the Sub-Saharan weights of the Market Vectors Africa ETF (AFK) and T. Rowe Price’s TRAMX are the table’s biggest surprises.
How is it that these two Africa funds deploy only half of their assets to sub-Saharan stocks?
Photo by Weesam2010
Well, AFK invests heavily in North Africa and in companies that do business in Africa but which are domiciled in the US, Europe, or Australia. The same goes for TRAMX, but, unlike AFK, it also invests in Middle Eastern stocks.
Now, let’s check out the sectors that each fund invests in.
Screening Out the Mining and Oil Plays
I’ve often noted that I’m not a fan of mining and oil stocks. I see the most long-term, sustainable growth in sectors with more direct exposure to the African consumer — banking, retail, and construction.
The following chart measures the exposure of each fund to sub-Saharan listed stocks excluding those mining and oil companies.
| Fund Name | Ticker | Sub-Saharan Weight (excluding Mining and Oil) |
|---|---|---|
| iShares MSCI South Africa Index | EZA | 73.6% |
| Nile Pan Africa Fund | NAFAX | 72.5% |
| SPDR S&P Emerging Middle East and Africa | GAF | 68.2% |
| Commonwealth Africa Fund | CAFRX | 51.9% |
| Market Vectors Africa Index ETF | AFK | 43.1% |
| T. Rowe Price Africa & Middle East | TRAMX | 38.7% |
| Wasatch Frontier Emerging Small Countries Fund | WAFMX | 32.2% |
| Templeton Frontier Markets | TFMAX | 22.9% |
| HSBC Frontier Markets Fund | HSFAX | 17.5% |
| iShares MSCI Frontier 100 Index Fund | FM | 15.5% |
| Harding Loevner Frontier Emerging Markets Portfolio | HLMOX | 13.8% |
Now we see some real separation between the funds that give their investors exposure to the rise of an African middle class (EZA, NAFAX, GAF) and those that bet heavily on natural resources (CAFRX) or other geographic regions (HLMOX).
But let’s dig still deeper.
Who’s Investing In Frontier Africa?
Clearly, many of these funds invest heavily in South African stocks. South Africa, with its relatively developed infrastructure, and slower economic growth rate may not offer the same ground floor investment opportunity that faster growing countries like Nigeria and Kenya do.
This next table screens out South African stocks from each fund’s portfolio to determine which one invests most heavily in rising incomes in the African frontier.
| Fund Name | Ticker | Sub-Saharan Weight (excluding South Africa, Mining, and Oil) | Frontier African Countries Represented |
|---|---|---|---|
| Nile Pan Africa Fund | NAFAX | 25.1% | Nigeria, Ghana |
| Wasatch Frontier Emerging Small Countries Fund | WAFMX | 23.9% | Nigeria, Kenya, Ghana, Namibia |
| Market Vectors Africa Index ETF | AFK | 20.8% | Nigeria, Kenya |
| Templeton Frontier Markets | TFMAX | 18.9% | Nigeria, Kenya, Zimbabwe, Mauritius, Ghana, Malawi |
| HSBC Frontier Markets Fund | HSFAX | 17.5% | Nigeria, Kenya |
| iShares MSCI Frontier 100 Index Fund | FM | 15.5% | Nigeria, Kenya, Mauritius |
| Harding Loevner Frontier Emerging Markets Portfolio | HLMOX | 13.8% | Nigeria, Kenya, Ghana, Mauritius, Senegal |
| T. Rowe Price Africa & Middle East | TRAMX | 10.7% | Nigeria, Ghana, Zambia |
| Commonwealth Africa Fund | CAFRX | 4.0% | Nigeria, Kenya |
| iShares MSCI South Africa Index | EZA | 0.0% | |
| SPDR S&P Emerging Middle East and Africa | GAF | 0.0% |
So, there you have it. If you are in the market for an Africa-focused mutual fund with significant exposure to frontier markets, then you should take a close look at the Nile Pan Africa Fund (NAFAX).
You might consider the Wasatch Frontier Emerging Countries Fund if you’re less biased toward Africa and more concerned about geographic diversification.
The bigger revelation for me, however, is that there appears to be an excellent opportunity to launch a frontier Africa fund.
Any takers?
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I’d be happy to hear of, and perhaps invest in a frontier Africa fund
What about investment vehicles like the Duet Africa Index Fund (http://www.duetgroup.net/) or the Africa Opportunity Fund (http://www.africaopportunityfund.com/index.php?menu=2). They may be less accessible than the above ETFs, but would certainly offer better Sub-Saharan ex. South Africa exposure.
You’re absolutely right. I’ll try to dig into both of these funds in future posts.
I’d just like to thank you for all the information you provide. This is just the type of analysis that really helps me make the decisions I have to make with my investments.
Keep up the good work – it is much appreciated.
Thanks, David. I’m glad you find it useful!
Hi Ryan
Just left a message on another forum, didn’t realize you had many other articles. This article seems closely related to what I was after, do you know of any trading platforms which allow you to trade any of the ETFs you mentioned here?
Cheers
John
Hi John,
I believe EZA is the only one of these ETFs with options, and I believe TradeKing.com allows you to trade them.
Happy Investing!
Ryan
Thanks for posting this article. Very useful. I would consider investing in a Frontier\’s type fund focused on Africa, especially sub-Saharan Africa. The one caveat is that I am not willing to invest in a fund with holdings that include tobacco companies. I cannot in good conscience invest in companies whose products perpetuate misery and suffering in a region that has seen far to much of it in the past few hundred years.
Thank you.
Dan
I’m with you, Dan. Thanks for your comment.
Very interesting, can you perhaps expand on this to include size of fund, returns over one, three and five years. Also how returns have compared to other blue chip opportunities in Africa such as investing with the largest Africa asset managers and their top performing funds? Secondly, are asset managers emerging in for instance in Nigeria that can compete in size and performance with the longer established Africa asset managers?
Great questions, Harry. There are indeed asset managers across the continent with more than enough chops to compete with their North American counterparts. I hope to tap into the expertise of these managers in future posts. Stay tuned!
Interesting piece in the most recent Economist on signs emerging in the Islamic world that science is making a comeback. I thought I’d mention it here since parts of the region are affected. The numbers are still pretty grim, but some countries are beginning to increase funding for non-religious education and science. I can’t help but think that this is a positive long-term trend for the region which will be a strong economic driver.
Dan
Thanks for this, Dan. Those interested in reading the article can find it here.
All,
I found another interesting piece on Africa, this one on telecoms and cell phone penetration / availability.
http://www.reuters.com/article/2013/01/31/us-africa-telecoms-idUSBRE90U0MK20130131
It is a quick but interesting read.
Dan
The current issue of the Economist (March 2) contains a special 14 page report on Emerging Africa. The focus is on Sub-Saharan Africa. It is an interesting read.
Dan
Another interesting piece on expansion of African banking.
http://www.reuters.com/article/2013/04/12/us-africa-banks-idUSBRE93B0P720130412