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.
Here’s why.
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.]
Hello Sir. Please, i will like to have a private chat with you on an emerging opportunity in the capital market. It is regarding PE funding in the company i work with here in Nigeria. We are a capital market operator, precisely, a stockbroking firm, duly registered with SEC and NSE. We currently trade on the floor of the NSE and we are a member of the NSE. There is an investment opportunity i will like to propose to PE investors and i will really appreciate your guidance. Looking forward to your response.
Hi Ryan,
As always, your article is super helpful and this is exactly the kind of thing I have been looking for. I immediately looked up NGE on the web and it wasn’t long before I saw a downer article (http://online.barrons.com/article/SB50001424052748704882404578390630500580920.html?ru=yahoo&mod=yahoobarrons). The author of this Barron’s article points out a few things that make him want to take a pass on Nigeria as an investment opportunity. He points out the social and political problems of the country, as well as the fact that the Nigerian stock exchange has had a big run and is therefore no longer a bargain. He also mentions that 40% of NGE’s portfolio is made up of financial companies, which he says is not sufficiently diversified. I wonder what you think of these concerns.
Thanks again,
Rui
I don’t know about some the holdings in that ETF but good to see an ETF with 100% Nigerian holdings. If you want to be investing in Nigerian stocks I suggest you start using this website http://www.easykobo.com to have a better understanding of what’s going on everyday.
@ Rui Galvao, I read the Barron article and just ignored it because it was poorly researched and seem out of touch with current events on the continent.
@Ryan, as always thanks for your insightful articles. I’m just surprised that there is no telecom exposure in the portfolio. Any thoughts?
I saw a couple of oil companies. Personally, I haven’t been a fan of oil and mining stocks. Otherwise there are some great names in the portfolio. Would take a deeper look to see if it is worth buying.
Thanks!
My comments exactly — where is the telecom in this portfolio. I wanted to ask you about this as a separate topic altogether… Telecom is one of the most important areas for growth in Africa right now. People love their cell phones there… How do we find great companies to invest in and hopefully a way to do it without the hassle of a Nigerian or other individually based stockbroker?
Hi Aswini,
You might consider MTN Group. They generate 29% of their revenue in Nigeria and while their primary listing is in Johannesburg, their shares also trade OTC here in the USA. The ticker symbol is MTNOY. Other telecoms that do substantial African business and trade OTC include Vodacom (VDMCY) and Millicom (MIICF).
All the best,
Ryan
I’ve been investing in Africa for about two and a half years now. My strategy was to invest in Market Vectors Africa (AFK), Nile Pan Africa Fund (NAFAX), and Lonrho (LONR). I thought this was a good way to easily diversify across the continent. Unfortunately Lonrho is being bought out by FS Africa. I’ll get my money back, but I won’t be able to participate in Lonrho’s Africa holdings anymore. I feel like one of the legs of my three-legged stool on which I’m sitting has been kicked out from under me!
FS Africa is a private company, so I can’t invest there. Any suggestions? Maybe FastJet? or Massmart, or Shoprite? Maybe NGE? Does anyone know of another Africa conglomerate that’s easy to invest with? I really am bummed out about the loss of Lonrho.
Congrats on the nice Lonrho pop, Russell. You’re right. As far as accessibility and breadth of sectors go, Lonrho was tough to beat.
I’m skeptical of FastJet’s prospects. African airlines don’t have a great track record of profitability. Massmart and Shoprite are good plays on the growth of the African consumer, but they aren’t bargain-priced at the moment. NGE, in my opinion, is a nice option for a long-term hold. Keep in mind, though, that it is heavily-weighted toward financials, as is the Nigerian Stock Exchange at large.
Wow, one of my gurus replied to my e-mail! Hey thanks Ryan for your advice and great website.
Haha, you’re quite welcome, Russell. Thanks for the great question and happy investing!
Hi Ryan
Thank you very much for the great article. I’m a 23 year investor and I’m looking to invest in the Nigerian market, I’m specifically looking into a ETF. My question is that I see the global x is not listed on the JSE, as a South African go would I invest in this?
Thank you for your time
Great question, Kagiso. In order to invest in this fund, you would need to open a US brokerage account or an account in Europe that gives you access to US equities. As, US brokerage accounts are difficult for non-residents to obtain, it may be easier to simply open a Nigerian brokerage account and purchase Nigerian shares directly.
All the best,
Ryan