I literally jumped out of my chair last week when Jan Schalkwijk told me a new Nigeria ETF had just listed on the New York Stock Exchange.
Why did the news provoke me to bounce around my office like I’d hit a buzzer-beating jump shot?
Because, at this moment, I believe the Global X Nigeria Index ETF (Ticker: NGE) is one of the most accessible, pure, and cost-efficient ways for US retail investors to tap into the Sub-Saharan growth story.
Invest in Nigeria on a Shoestring Budget
With a GDP growth rate well above six percent, a gigantic, young population, and a reforming financial sector, I am very bullish on the Nigerian economy. In fact, I wrote about several mutual funds with exposure to the country just two weeks ago.
Happily, NGE’s arrival on the scene has made that post a moot point.
First, NGE gives you a pure play on the Nigerian stock market very cheaply. How cheaply? Its expense ratio is a mere 0.68%. Compare this to the other funds with significant Nigerian holdings.
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Not Too Much 0f That Oily Feeling
Second, NGE’s portfolio is nicely skewed toward assets that stand to benefit from the growth of Nigeria’s consumer economy.
Less than 25% of the index is invested in oil and gas companies. The remainder is invested largely in banking (45%), consumer goods (25%), and cement (6%).
Here’s a brief introduction to the ETF’s ten largest holdings.
1. Guaranty Trust Bank (GUARANTY:NL) — Weight: 10.0%
Nigeria’s largest bank stock just reported earnings growth of 69% on the back of double-digit loan and deposit growth. Now it has its sights set on East Africa. The CEO this month announced its intention to enter the Kenyan, Tanzanian, and Ugandas markets via the purchase of a profitable small to mid-tier local bank.
2. First Bank of Nigeria (FBNH:NL) — Weight: 9.9%
Who’d have thunk that a Nigerian bank with a nearly 120-year history would be one the Nigerian Stock Exchange’s most dynamic stocks? Shares of FBN, which boasts the country’s largest branch network, have gained 135% in local currency over the past 12 months.
3. Zenith Bank (ZENITHBA:NL) — Weight: 8.1%
Shares of this fast-growing lender have just hit the London Stock Exchange in the form of Global Depository Receipts. In spite of it hitting a four-year price record, Zenith shares still trade for just a little more than seven times earnings.
4. Nigerian Breweries (NB:NL) — Weight: 7.4%
This affiliate of Heineken is Nigeria’s largest beer-maker. Earnings were flat in 2012 due to an expensive expansion strategy.
5. Access Bank Nigeria (ACCESS:NL) — Weight: 4.6%
It may be substantially smaller than GTBank, FBN, and Zenith, but Access is definitely a bank to watch. It more than doubled profits this year and now trades at a P/E ratio of just 5.3 and sports a dividend yield of 8.6%.
6. Nestle Nigeria (NESTLE:NL) — Weight: 4.6%
This consumer goods giant is figuring out the best ways to get its products into the hands of lower-income customers. The upcoming earnings report sounds as though it might disappoint some people, but the stock is up nearly 140% over the past 12 months.
7. United Bank for Africa (UBA:NL) — Weight: 4.5%
Yet another bank. This one has a larger geographic footprint throughout sub-Saharan Africa and has tripled its share price over the past year.
8. TGS-NOPEC (TGS:NO) — Weight: 4.4%
This Norway-listed firm provides geological data to oil and gas exploration companies, some of whom have substantial interest in Nigeria. To be honest, I’m not entirely sure why this company merits such a heavy weight in this portfolio.
9. Subsea 7 (SUBC:NO) — Weight: 4.4%
Another Norwegian company that caters to offshore oil drillers, Subsea 7 specializes in the maintenance and refurbishment of oil rigs. This company’s inclusion in the index also seems odd.
10. Saipem (SPM:IM) — Weight: 4.2%
An Italian oil drilling firm that does a significant amount of work off the Nigerian coast.
Other significant ETF holdings include Guinness Nigeria, Dangote Cement, and Unilever Nigeria.
Is It a Game-Changer?
The Global X Nigeria Index ETF presently trades at a premium of roughly 3% to the value of its underlying portfolio, but in my view this is a small price to pay for taking the hassle out of opening a Nigerian brokerage account.
Sub-Saharan stock markets are hitting the world stage. These are exciting times.
[Disclosure: I have a beneficial interest in shares of Guaranty Trust Bank and Zenith Bank through my work with Africa Capital Group.]