Best African Funds and ETFs – that will be the topic of today’s article.
Discover the best African Funds and ETFs alongside insights into Novia Global.
Nothing written here should be considered as financial or any other kind of advice.
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Introduction
To begin this topic, we must get to know some of the important details regarding Africa, especially regarding its investment opportunities.
In the year 2000, Africa was stated to be a ‘Hopeless Continent’ by The Economist. The very same publication stated Africa to be “Aspiring Africa” in March 2013, which tells us a lot about Africa.
In recent days, Africa became the latest destination for emerging markets investors.
According to the World Economic Forum, half of the world’s rapidly growing economies have been in Africa. Out of these countries, Ghana and Ethiopia specifically displayed real GDP growth of more than 8% in the year 2018.
Africa has a significant number of natural resources, a huge and effective educated workforce, increasing stability related to governance, and many other factors that contribute towards its economic growth compared to the past years.
New investors can opt for making a small investment in the investment assets of Africa such as stocks, mutual funds, or exchange-traded funds, and it can definitely prove out to be beneficial.
Other than these traditional asset classes, advanced investors might also opt for the American depositary receipts (ADRs).
There is no need to say that Africa is extremely rich in terms of natural resources. It has vast, untouched reserves of oil and natural gas, which happen to be around 10% of the world’s reserves, and it also has a huge untapped hydroelectric power.
It is the source of vast reserves of gold, platinum, uranium, iron ore, copper, diamond, among other metals
At present, Africa’s fertile land that is being cultivated is only 10%, while it consists of around 60% of the farmable land in the world. Because of these factors, Africa is being considered a magnet for foreign direct investment (FDI).
Another considerable advantage in Africa is that it has a large and comparatively cheap educated labor force.
The continent is experiencing a demographic transformation, with youth as its main objective. The population of Africa consists of a very high proportion of people who are in their 20s and 30s while having fewer dependents (both old and young).
This can be a very crucial aspect of the economic growth and overall development of the continent.
Apart from that, stability in terms of governance is also significant. The countries that were subject to long periods of difficulties have now emerged as success stories.
In most countries, there are better policies, trade activities have improved, and the business environment is excellent.
As per World Economic Forum, it has been stated that more than 40% of Africans will come under the middle or upper classes by the year 2030. And because of this, there will be an increase in the demand for goods and services in the African continent.
It is anticipated that household consumption is going to reach $2.5 trillion in 2030, which is more than double compared to the $1.1 trillion of 2015.
This anticipated $2.5 trillion is expected to be spent mostly in three major countries, which are ‘Nigeria (20%)’, ‘Egypt (17%)’ and ‘South Africa (11%)’.
Nevertheless, countries such as Algeria, Angola, Ethiopia, Ghana, Kenya, Morocco, Sudan, and Tunisia would be able to lure companies seeking to enter new markets.
The sectors that are deemed to grow rapidly over the next 30 years are food and beverages, education, transportation, housing, goods & services, hospitality, recreation, healthcare services, financial services, and telecommunications.
Stock Scenario in Africa
In Sub-Saharan Africa, there are around 29 stock exchanges that belong to 38 countries and include the two regional exchanges.
The stock exchanges in Africa are inconsistent in terms of their size and trading volume.
The continent consists of a few major exchanges and several new/small exchanges that are differentiated by small trading volumes and a limited number of listed stocks.
Almost all the countries are putting in a lot of effort to improve their exchanges by improving aspects such as investor education and confidence, accessibility of funds, transparent procedures, and standardized processes.
To invest in the African stock market, a person must have a deep understanding of the aspects related to it, and they must be able to select the appropriate stock exchange.
Investing with the help of a mutual fund or exchange-traded fund (ETF) is considered to be a better option for beginner-level investors, who are looking to get involved with Sub-Saharan Africa.
To directly access African stocks, an individual is required to have a local brokerage account. This process of obtaining one can be a bit sophisticated because investors are required to shortlist stocks and stock exchanges.
Some of the brokerage firms available in Africa, which specifically cater to foreign investors are as follows:
- Orbit Securities (Tanzania)
- Vertex Securities (Tanzania)
- Faida Investment Bank (Kenya)
- CAL Brokers (Ghana)
- FirstBanc Brokerage Services (Ghana)
- Stanic Bank Ghana Brokerage (Ghana)
- Zenith Securities (Nigeria)
- Meristem (Nigeria)
- Cowry Securities (Nigeria)
- EFE Securities (Zimbabwe)
- Lynton Edwards (Zimbabwe)
- Nedbank Online Trading (South Africa)
- Sanlam iTrade (South Africa)
Some of the best companies to invest in Africa are as follows:
- Kenkobil Ltd.
- Dangote Cement PLC
- CRDB Bank
- National Microfinance Bank
- African Alliance
- Bank of Kigali
- Bralirwa Ltd.
- Equity Bank
- KCB Bank
- ARM Cement
- Ecobank
- UBA Plc
- CIC Insurance
- Britam
- Courteville Business Solutions PLC
- Naspers Ltd
Based on market capitalization, the Johannesburg Stock Exchange (JSE) happens to be the largest stock exchange in Africa.
ETF and Mutual Fund scenario in Africa:
Investing with the help of ETFs and mutual funds offers potential benefits such as ease, diversification, and professional management. Since a few years, investors came up with various ways for investing in exchange-traded funds from Africa.
In order to know which mutual funds and ETFs have been performing well, we will have a look at the mutual funds, and then we will take a look at the top African ETFs.
Now, let us have a look at the best mutual funds in Africa in 2021.
Best Mutual Funds and ETFs in Africa:
Here we are providing you with the best mutual funds and ETFs in Africa, as per the information gathered from ‘Mutual Funds’ website.
- Commonwealth Africa
Snapshot:
| Price (on 27th August): | $8.36 |
| Theme: | Small Regions Equity |
| YTD (Year-to-date) Return: | 14.5% |
| 3-Year Annualized Return: | -2.3% |
| 5-Year Annualized Return: | 1.8% |
| Net Assets: | $2.96 M |
| Holdings in Top 10 best assets: | 45.8% |
| 52-week low: | $5.76 |
| 52-week high: | $9.28 |
| Expense Ratio: | 1.82% |
| Dividend Yield: | 2.2% |
| Dividend Distribution Frequency: | annually |
| Minimum Investment: | $200 (standard amount, taxable) |
| Legal Name: | Commonwealth Africa Fund |
| Fund Family Name: | Commonwealth Intl Series Tr |
| Inception Date: | Nov 07, 2011 |
| Shares Outstanding: | N/A |
| Share Class: | Other |
| Currency: | USD |
| Domiciled Country: | United States |
| Manager: | Wesley Yuhnke |
Top Holdings:
| Capitec Bank Holdings Ltd | 11.99% |
| Impala Platinum Holdings Ltd | 8.15% |
Asset Allocation:
| Stocks | 97.2% |
| Cash | 2.8% |
As per the normal market conditions, the Commonwealth Africa fund invests around 80% of its overall assets in the securities, which are depositary receipts consisting of ‘American Depositary Receipts (ADRs)’, ‘Global Depositary Receipts (GDRs)’, and ‘European Depositary Receipts (EDRs)’.
These are represented by the African issuers who are economically involved with Africa. There is a possibility for the fund to enter into derivative transactions as well.
- iShares MSCI South Africa ETF
Snapshot:
| Price (on 27th August): | $47.01 |
| Theme: | Small Regions Equity |
| YTD (Year-to-date) Return: | 10.1% |
| 3-Year Annualized Return: | -0.7% |
| 5-Year Annualized Return: | 1.7% |
| Net Assets: | $247 M |
| Holdings in Top 10 best assets: | 56.6% |
| 52-week low: | $35.32 |
| 52-week high: | $55.37 |
| Expense Ratio: | 0.59% |
| Dividend Yield: | 4.8% |
| Dividend Distribution Frequency: | Semi-annually |
| Minimum Investment: | N/A |
| Legal Name: | iShares MSCI South Africa ETF |
| Fund Family Name: | iShares |
| Inception Date: | Feb 03, 2003 |
| Shares Outstanding: | N/A |
| Share Class: | Other |
| Currency: | USD |
| Domiciled Country: | United States |
| Manager: | Greg Savage |
Top Holdings:
| Naspers Ltd Class N | 25.87% |
Asset Allocation:
| Stocks | 99.81% |
| Cash | 0.19% |
In general, this ETF invests around 80% of its overall assets in the securities of the underlying index along with the depositary receipts that represent the securities in its underlying index.
The underlying index makes use of a capping methodology for being able to limit the weightage in the portfolio up to a maximum of 25% for any single issuer of the underlying index.
The underlying index consists of large-cap and mid-cap corporations, which may vary over time. This isn’t diversified.
- VanEck Vectors Africa ETF
Snapshot:
| Price (on 27th August): | $21.51 |
| Theme: | Small Regions Equity |
| YTD (Year-to-date) Return: | 7.0% |
| 3-Year Annualized Return: | 0.8% |
| 5-Year Annualized Return: | 3.8% |
| Net Assets: | $65.5 M |
| Holdings in Top 10 best assets: | 48.2% |
| 52-week low: | $17.10 |
| 52-week high: | $22.98 |
| Expense Ratio: | 0.79% |
| Dividend Yield: | 3.7% |
| Dividend Distribution Frequency: | annually |
| Minimum Investment: | N/A |
| Legal Name: | VanEck Vectors Africa Index ETF |
| Fund Family Name: | VanEck |
| Inception Date: | Jun 10, 2008 |
| Shares Outstanding: | 3050000 |
| Share Class: | N/A |
| Currency: | USD |
| Domiciled Country: | United States |
| Manager: | Hao Hung (Peter) Liao |
Top Holdings:
| Naspers Ltd Class N | 8.94% |
Asset Allocation:
| Stocks | 99.59% |
| Cash | 0.41% |
In general, this ETF invests around 80% of its overall assets in the securities of the underlying index along with the depositary receipts that represent the securities in its underlying index.
The index is comprised of the securities of the companies located within Africa.
African companies usually mean the listings of local companies that are incorporated in Africa or listings of companies that aren’t incorporated in Africa, yet they have at least 50% of their income or relevant assets in Africa.
- Global X MSCI Nigeria ETF
Snapshot:
| Price (on 27th August): | $11.17 |
| Theme: | Small Regions Equity |
| YTD (Year-to-date) Return: | -0.8% |
| 3-Year Annualized Return: | -5.9% |
| 5-Year Annualized Return: | 0.5% |
| Net Assets: | $43.7 M |
| Holdings in Top 10 best assets: | 81.6% |
| 52-week low: | $8.96 |
| 52-week high: | $13.47 |
| Expense Ratio: | 0.89% |
| Dividend Yield: | 3.7% |
| Dividend Distribution Frequency: | annually |
| Minimum Investment: | N/A |
| Legal Name: | Global X MSCI Nigeria ETF |
| Fund Family Name: | Global X Funds |
| Inception Date: | Apr 02, 2013 |
| Shares Outstanding: | N/A |
| Share Class: | N/A |
| Currency: | USD |
| Domiciled Country: | United States |
| Manager: | Nam To |
Top Holdings:
| United States Treasury Bills 0% | 18.13% |
| Dangote Cement PLC | 14.92% |
Asset Allocation:
| Stocks | 92.20% |
| Cash | 7.80% |
As per the normal market conditions, this fund invests around 80% of its overall assets in the securities of the underlying index, and in ‘American Depositary Receipts (ADRs)’ and ‘Global Depositary Receipts (GDRs)’ of the securities in the underlying index.
- VanEck Vectors Egypt ETF
Snapshot:
| Price (on 27th August): | $25.97 |
| Theme: | Small Regions Equity |
| YTD (Year-to-date) Return: | 5.2% |
| 3-Year Annualized Return: | -6.9% |
| 5-Year Annualized Return: | -6.6% |
| Net Assets: | $22.1 M |
| Holdings in Top 10 best assets: | 56.2% |
| 52-week low: | $23.76 |
| 52-week high: | $27.45 |
| Expense Ratio: | 0.98% |
| Dividend Yield: | 2.4% |
| Dividend Distribution Frequency: | annually |
| Minimum Investment: | N/A |
| Legal Name: | VanEck Vectors Egypt Index ETF |
| Fund Family Name: | VanEck |
| Inception Date: | Feb 16, 2010 |
| Shares Outstanding: | 849974 |
| Share Class: | N/A |
| Currency: | USD |
| Domiciled Country: | United States |
| Manager: | Hao Hung (Peter) Liao |
Top Holdings:
| Egyptian Kuwaiti Holding | 8.56% |
Asset Allocation:
| Stocks | 96.30% |
| Cash | 3.70% |
In general, this ETF invests around 80% of its overall assets in the securities of the underlying index along with the depositary receipts that represent the securities in its underlying index.
The index comprises the securities of the companies located within Egypt.
Egyptian companies usually mean the listings of local companies that are incorporated in Egypt or listings of companies that aren’t incorporated in Egypt, yet they have at least 50% of their income or relevant assets in Africa.
These companies are usually small-cap and medium-cap companies and this ETF is non-diversified.
- Franklin FTSE South Africa ETF
Snapshot:
| Price (on 27th August): | $25.33 |
| Theme: | Small Regions Equity |
| YTD (Year-to-date) Return: | 11.5% |
| 3-Year Annualized Return: | N/A |
| 5-Year Annualized Return: | N/A |
| Net Assets: | $2.61 M |
| Holdings in Top 10 best assets: | 53.8% |
| 52-week low: | $18.43 |
| 52-week high: | $29.74 |
| Expense Ratio: | 0.19% |
| Dividend Yield: | 3.5% |
| Dividend Distribution Frequency: | Semi-annually |
| Minimum Investment: | N/A |
| Legal Name: | Franklin FTSE South Africa ETF |
| Fund Family Name: | Franklin Templeton Investments |
| Inception Date: | Oct 10, 2018 |
| Shares Outstanding: | 100000 |
| Share Class: | N/A |
| Currency: | USD |
| Domiciled Country: | United States |
| Manager: | Dina Ting |
Top Holdings:
| Naspers Ltd Class N | 23.17 |
Asset Allocation:
| Stocks | 100% |
The index is dependent on the ‘FTSE South Africa Index’ and is tailored in such a way to determine the performance of stocks belonging to the South African large-cap and medium-cap companies.
The fund focuses its investments on a specific industry or a group of industries almost up to the same extent in the way (approx.) in which the index is focused. It is non-diversified.
Some of the top-most ETF Issuers in Africa are as follows:
- Blackrock Financial Management
- Franklin Templeton
- Franklin Templeton Investments
- Global X Management Company LLC
- Barclays Global Fund Advisors
- Mirae Asset
- Mirae Asset Global Investments Co., Ltd.
- Van Eck Associates Corp.
- Van Eck Associates Corporation
- VanEck
Honorable mention:
SPDR S&P Emerging Middle East & Africa ETF (GAF)
GAF concentrates on Africa and the Middle East by depending on the S&P Mid-East and Africa BMI Index (STBMMEU).
It consists of some of the top holdings similar to EZA (iShares MSCI South Africa Index ETF), and it also consists of other holdings such as AngloGold, Impala Platinum, and Firstand.
Some of the sectors that are concentrated by the SPDR are Finance, Materials, telecommunications, and Consumer Discretionary.
Having said that, let us take a look at why you should invest in African assets.
Why Invest in Africa?
With scope for potential investments, you must know that investing in Africa can be a situation where you will be tested for your patience as an investor.
Some of the major types of investments that worked out well in most other continents might provide better results in some particular places such as Ghana. Just like in any other continent or country, an investor who is patient tends to make profits.
Given below are some of the major reasons why you should try to invest in Africa.
- Abundant youth and growing population
To be precise, Africa consists of more than 1 billion people. Based on the stats obtained from the UN, it is estimated that around 60% of Africa’s population in the year 2019 is of an age under 25.
This makes Africa be the continent that consists of the world’s youngest population. As per the reports we’ve obtained, the median age of the people living in Africa in 2020 is around 19.8 years(approx.).
Based on the demographics, the significant number of young people could be a sign of economic strength.
Along with that, Africans who are young are interested to become a part of the growing sectors such as products & services or technology, or any other sector for that matter, which will generate a higher amount of returns for the investor.
- Diverse customers
The middle-class population of Africa is becoming the people who tend to make progress towards the new trends and the variation in consumption.
Based on the details we’ve gathered from the World Economic Forum, the youth present in Africa is aware of the emerging trends in the brands, and are acquiring an extreme level of knowledge regarding investments in the continent.
- They have the money to spend and love the brands
Based on the details provided by McKinsey, it has been estimated that, by the year 2025, household consumption in Africa would be around $2.1 trillion and business expenses would be $3.5 trillion.
This would result in a total of $5.6 trillion in business and investment opportunities altogether in Africa.
In the case of most Africans, people are beginning to consider the quality and brand of a product before purchasing it.
At the same time, the McKinsey consumer report has proven that around 58% of consumers in Africa are loyal to the brands they like, and most people intend to pay a higher price for acquiring popular brands.
- A diverse and robust economy
In the past years, the economies of countries in Africa often relied on sectors such as agriculture and natural resources. Nevertheless, African economies are now diversifying in assets beyond commodities to most people’s imagination.
Countries in Africa are also concentrating on non-commodity sectors where there is a lot of existential competition.
In most countries of Africa, there is a so-called ‘Investment Promotion Agency’, which acts as a major destination for investors, while helping them with registration, taxes, and other aspects so that they could establish a company locally.
- Digital Innovation
As per the GSMA (Global System for Mobile Communications), around 475 million people living in the sub-Saharan region of Africa are expected to be mobile internet consumers by the year 2025.
Based on this data, we can say that Africa is a leading continent when it comes to adopting mobile technology.
Mobile money networks that started their business in East Africa are opening up their business to the global economy, especially to the unbanked cities and rural population in Africa.
Bottom Line:
Yes, investing in Africa tends to be a very good idea because the continent is experiencing a lot of hype when it comes to businesses and investments.
Nevertheless, we must also consider the fact that investing in mutual funds and ETFs only might affect your investment portfolio, which would result in potential losses.
We have been saying it a lot and we will say it again; “investing in a single asset class might not prove to be profitable compared to investing in various asset classes based on your investment goals and your financial situation”.
Just by investing in a specific investment class, you would only be focusing on a particular asset, whereas by investing in various types of assets, you would gain exposure towards profits.
An ideal portfolio should consist of various types of assets such as stocks, bonds, ETFs, mutual funds, and many other types of assets.
By doing so, you can diversify your portfolio and you can cope with the losses in a specific asset class (if any).
Most people might not be familiar with all the terminology, or the concepts related to various types of investments. If you belong to such a type of category, we can assist you in learning the fine art of investing with the help of our ‘Adam Fayed Academy’.
After you gained financial expertise through our academy, you can take of your investments on your own.
To be frank, most people can’t take care of their investment assets on their own because of various reasons.
For instance, you might be a surgeon who is very busy in your line of work, or you might not be familiar with the aspects related to investment. If you fall under such a category, don’t worry, because we provide the best-in-class financial services based on your requirements.
To acquire the abovementioned financial solutions, please contact us and avail of the services we offer by clicking here.
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